As 2022 draws to a close, the prospects for major media companies and their revenues in 2023 are seen as challenging as more streaming TV options compete for the pot of advertising dollars.
This is in an assessment of the media and entertainment market by Bank of America analyst Jessica Reif Ehrlich, who said that with “limited visibility” ahead, the advertising market is expected to remain choppy next year due to a number of factors that will set the tone for the streaming industry in particular.
These factors include the continued shift of advertising budgets from traditional television to streaming platforms, and how companies are able to make up for lost revenue.
Ehrlich said advertising budgets shifting from “linear viewing” to streaming services, new ad-supported streaming options, and the growth of “retail media networks” such as Amazon (AMZN) “will all increase the wallet share of advertising budgets” to the detriment of traditional linear advertising.
Ehrlich said that while many media companies are involved in ad-supported streaming, with no significant changes to their ad loads, “We remain skeptical of their ability to fully recoup lost linear ad dollars on a one-to-one basis. ” on the long term. term.
Among the companies that Ehrlich says stands out, but not in a very positive way, is Disney (NYSE: DIS). The media and entertainment giant was recently troubled by the surprise dismissal of chief executive Bob Chapek and the return of retired CEO Bob Iger to the company on a two-year contract. Ehrlich said investors and the media industry largely “celebrated” Iger’s return, and she called Iger a “strong, well-rounded and charismatic leader.”
However, Ehrlich said “bringing the magic back to Disney could take time” as Iger faces multiple strategic and operational decisions that will affect Disney (DIS) in the years to come.
These decisions include how to restructure the Disney Media and Entertainment division. [DMED]which includes Disney+, whether to adjust price increases at Disney’s theme parks (DIS), options for Hulu, and whether or not to create ESPN and other Disney-owned linear TV networks ( SAY).
Ehrlich said Iger is likely to act quickly on the restructuring, which could lead to more management departures like that of Kareem Daniel, the former DMED chief whom Iger ousted in one of his first moves upon his return to the office of the CEO of Disney (DIS). Ehrlich expects Iger to spend more time evaluating other issues before making large-scale strategic changes.
“We expect Iger to deliberately evaluate all of these options and it could take several months before we have more definitive clarity on his longer-term vision,” Ehrlich said.
Content spending also remains a major issue for media and entertainment companies, which Ehrlich says are “subdued” for now as Netflix (NASDAQ: NFLX) and other media companies have suggested cutting their content budgets. “We expect inflationary pressures on content spending to continue [into 2023]Ehrlich said, “suggesting that a stable year-over-year content budget implies either lower production or an increased mix towards cheaper content. [content] alternatives.”
One area where demand for content is expected to remain high is sports rights. Ehrlich noted that Amazon’s (AMZN) securing of Thursday Night National Football League games and Apple’s (NASDAQ: AAPL) a new exclusive deal to broadcast Major League Soccer matches shows that “demand for sports [should] remain robust for the next few years.”
With all the different moving parts affecting the media sector, Ehrlich said the industry is “nearing the tipping point” of a new wave of corporate consolidation. Ehrlich said that “handicapping the precise timing of any transformation deal is difficult,” but there is one company among all the others that could trigger a series of takeovers and transactions.
“We think Bob Iger’s strategic vision for Disney could be a potential catalyst depending on the direction he takes,” Ehrlich said. “The resulting disruptive impact would likely trigger a domino effect in the industry.”
Disney (DIS) gave a glimpse of where it could go with its recent annual business report.
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