The Zacks Film and Television Production and Distribution industry is benefiting from a spike in demand for digital entertainment, fueled by limited capacity and operational limitations in movie theaters, theme parks and cruise lines. The increased consumption of media, music and news over the web, triggered by the work-and-learn-at-home wave, has been a key catalyst for industry participants like Warner Music Group WMG, News Corporation NWSA, Lions Gate Entertainment (LGF.A) and IMAX Corporation IMAX. Companies have been focusing on a superior product strategy and prudent capital investments. Steady recovery in the advertising spending environment and resumption of production pipelines bode well for film and television production companies.
Industry Description
The Zacks Film and Television Production and Distribution industry comprises companies involved in film and TV production, distribution and exhibition. The main activities of the industry participants include the production and distribution of entertainment content to theaters, TV networks, video-on-demand platforms, streaming services and other exhibitors. Imax offers entertainment technology and specializes in motion picture technologies and presentations. Industry participants produce and distribute motion pictures for theatrical and straight-to-video releases alongside TV programming. These players are heavily dependent on the box-office performance of their films, both domestically and internationally, the number of film releases and the ratings of TV shows.
3 Film and Television Production Industry Trends in Focus
Over-the-Top Services Gain Prominence: Companies involved in content creation are looking to distribute content through over-the-top services to leverage the popularity of their franchises. With this, they are looking to provide exclusive content and a differentiated experience. However, streaming companies are increasingly producing original and award-winning feeds to reduce licensing costs and excessive dependence on third-party content providers. This is likely to hurt industry participants’ content distribution strategy.
Binge-Watching Drives Consumption: Factors such as binge-watching, deepening Internet penetration and advancement in mobile, video and wireless technologies have got viewers glued to small screens. To keep pace with new consumption patterns, industry participants are turning to digital content distribution. The emergence of digital capabilities is making consumer data easily available to companies. With the use of AI tools, production houses are gaining a better understanding of user preferences. This helps them produce content that strikes a chord with viewers. However, increasing spending on content and sales & marketing is hurting profitability due to stiff competition from streaming players.
Technological Advancement Aids Prospects: Exhibitors are turning to highly efficient and cost-effective technologies like laser-based projection systems to enhance image quality and the entire movie experience. Additionally, the use of technologies like motion seating, immersive audio systems and interactive movies, among others, is expected to enhance the viewing experience. The increasing adoption of AR and VR technologies bodes well for industry participants. However, the evolution of alternative motion picture distribution channels, such as home video, pay-per-view, streaming services, video-on-demand, Internet and syndicated and broadcast television, is hurting exhibitors.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Film and Television Production and Distribution industry is housed within the broader Zacks Consumer Discretionary sector. It carries a Zacks Industry Rank #62, which places it in the top 25% of more than 246 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates encouraging near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry’s position in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are optimistic about this group’s earnings growth potential.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Lags the S&P 500 but Beats the Sector
The Zacks Film and Television Production and Distribution industry has underperformed the Zacks S&P 500 but beat the sector in the past year.
The stocks in this industry have collectively rallied 29.3% compared with the S&P 500’s return of 29.4% and the Zacks Consumer Discretionary sector’s increase of 13.9% over the same time frame.
One-Year Price Performance
Industry’s Current Valuation
On the basis of the trailing 12-month price-to-sales (P/S), a commonly used multiple for valuing Film and Television Production and Distribution stocks, the industry is currently trading at 1.96X compared with the S&P 500’s 3.97X and the sector’s 2X.
Over the past five years, the industry has traded as high as 2.52X and as low as 0.92X, recording a median of 1.58X, as the chart below shows.
Trailing 12-Month Price-to-Sales (P/S) Ratio
4 Film & Television Stocks to Watch Right Now
Warner Music Group: This Zacks Rank #3 (Hold) company is benefiting from continued growth in Recorded Music licensing and Music Publishing synchronization revenues, including revenues from emerging streaming platforms. Moreover, continued investments in international markets are expected to aid the top line. Warner Music Group has shifted its focus from relying solely on celebrity influence and is now strategically targeting various elements of the value chain. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The company has made investments in media platforms like HipHopDX, IMGN, Uproxx and several others. These platforms have the potential to significantly expand WMG’s reach to a global audience of music enthusiasts. WMG is benefiting from its growing partnership with TikTok. This multi-year agreement grants TikTok, TikTok Music, CapCut and TikTok’s Commercial Music Library licenses to the repertoire of Warner Recorded Music and Warner Chappell Music.
Warner Music Group shares have declined 8% year to date. The Zacks Consensus Estimate for the company’s fiscal 2024 earnings has remained steady at $1.09 per share over the past 30 days.
Price and Consensus: WMG
IMAX: The company has been riding on the impressive performance of blockbuster titles in 2023. The strong show of Hollywood titles is aiding the gross box office collection along with the successful run of local language titles in China, Japan, India and South Korea. A solid slate of movie releases is expected to aid its top line in the rest of 2024. Strengthening partnerships with leading multiplexes in countries like North America, Vietnam, Mexico and Morocco is a big upside. Recovery in the pace of theater system installations and higher IMAX maintenance sales are major positives. Moreover, a steady cash balance and flexible business model position it well to expand and increase market share.
This Zacks Rank #3 company delivered a record-breaking encore performance in its dominating debut of Dune: Part Two as the IMAX global network notched a stunning 22% of the film’s global box office in its second weekend — the biggest global weekend market share in IMAX history.
The Zacks Consensus Estimate for IMAX’s 2024 earnings has moved north by 14.1% to 89 cents per share over the past 30 days. IMAX shares have risen 9.9% year to date.
Price and Consensus: IMAX
News Corporation: The company is benefiting from prudent strategic efforts, which include the ongoing digital transformation of the business, and investments in Digital Real Estate Services, Dow Jones and Book Publishing segments. News Corporation has been diversifying its revenue streams through strategic acquisitions and operational enhancement. It is optimistic about the acquisitions of the OPIS and Base Chemicals businesses that are likely to enhance Dow Jones’ information services business.
The company is well-positioned to grab opportunities generated from technology sharing across geographies and businesses and bundled offerings of enriched content to consumers and advertising partners. Solid momentum in Digital Real Estate Services owing to higher Australian residential revenues at REA Group is expected to aid top-line growth in the upcoming quarters.
News Corporation shares have rallied 3.9% year to date. The Zacks Consensus Estimate for this Zacks Rank #3 company’s fiscal 2024 earnings has moved south by 2.7% to 72 cents per share over the past 30 days.
Price and Consensus: NWSA
Lions Gate Holdings: The company is benefiting from strength in the Motion Picture and Media Networks segments. Strong viewership of content across all platforms, as well as a rise in subscriber base, is driving STARPLAY Domestic revenues. Increasing domestic OTT and global subscribers are expected to drive top-line growth in the near term. The company enjoys a strong pipeline of content on Starz’s platforms that boosts viewership and increases the subscriber base of its OTT platforms. Management has been planning to spend cautiously on content and not chase subscribers, therefore focusing on profitability. It will now also look for bundling and packaging opportunities.
In December, Lionsgate acquired the global entertainment platform eOne from Hasbro for $375 million in cash. The acquisition expands Lionsgate’s library by 6,500 film and television titles, boosting its portfolio of brands and franchises and strengthening its footprint in Canada and the United Kingdom.
Lionsgate shares have declined 12.2% year to date. The Zacks Consensus Estimate for this Zacks Rank #3 company’s fiscal 2024 earnings has remained steady at 54 cents per share over the past 30 days.
Price and Consensus: LGF.A
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Warner Music Group Corp. (WMG) : Free Stock Analysis Report
News Corporation (NWSA) : Free Stock Analysis Report
IMAX Corporation (IMAX) : Free Stock Analysis Report
Lions Gate Entertainment Corp. (LGF.A) : Free Stock Analysis Report
