Roku was a champ. Lionsgate surged and Netflix jumped. Tech shares went bananas in 2023. Big media stocks had a mixed year of transition dominated by Hollywood strikes with linear television declines and streaming losses.
Paramount fell. Disney and Fox were basically flat on the year. Giants Comcast and Sony, which both have other businesses like broadband or games and music, both had nice runs. Warner Bros Discovery gained a bit. All are pushing for profitability in streaming and progress there will influence how the stocks perform in 2024.
Relatively speaking, 2023 was a real bonanza compared with a truly dismal 2022 when only two – that’s two – media stocks rose for the year: WWE (now part of TKO Group) and Nexstar.
It was a surprisingly good 2023 for stocks overall with the S&P 500 closing up more than 24% for the year. Investors shrugged off high interest rates and inflation, recession fears, threats of a government shutdown, a brief banking crisis and international strife, turning around a year initially expected to be rather glum for markets.
Tech in particular brought the heat, fueled in large part by an AI frenzy. The famous FAANG group of stocks — Facebook (now Meta), Amazon, Apple, Netflix and Google (now Alphabet) — has morphed into The Magnificent Seven. Newly coined this year by an analyst (from the movie), it’s Alphabet, Amazon, Apple, Meta, Microsoft, Invidia and Tesla. This gang contributed significantly to overall gains. Shares of adjacent tech from Snap to Spotify also rallied.
Exhibitors were split to lower amid angst at 2024’s box office prospects. Broadcast stocks fell, with advertising soft but set for a political tsunami.
And the year year wrapped with a flourish of M&A chatter that hasn’t yet but could also buoy shares in 2024. It doesn’t hurt that the Federal Reserve indicated it may finally cut interest rates in 2024 after 11 hikes over the last two years.
A Closer Look
Roku was king of media in 2023, up 119%.
Remember back in March when the company worriedly announced that it had a quarter of its cash at Silicon Valley Bank, which wiped out in the biggest bank collapse since 2008. Disaster was averted when the FDIC agreed to fully guarantee all deposits and Roku took it from there. The business is benefitting as television ad dollars shift from linear to digital, as it expands overseas and as it sells lots of branded Smart TVs. May be a potential takeover target.
Disney, the only showbiz stock in the 30-member DJIA, nosed up slightly for the year. That’s well off its high for the year of $110 in January, when the market was flushed with enthusiasm at CEO Bob Iger’s return. But these are complicated times with linear television in steady decline, streaming still in the red and Disney facing a string of box office underachievers.
Iger notably acquired the rest of Hulu from Comcast, paying a previously agreed upon $8.6 billion minimum. It may owe more as both sides have teams working to establish a valuation. He’s waffled a bit on entertaining offers for ABC and linear networks and is looking for a strategic partner for ESPN ahead of an eventual streaming launch. Disney is reportedly doing a deal with Reliance for its assets in India.
Wall Streeters hope the new year will bring an update on succession planning, and perhaps on an NBA contract renewal. One analyst says he’s been getting lots of client calls on Disney recently. “They’ll say things like, ‘I used to own Disney. I just feel like it could be an interesting stock. There are so many moving parts right now, could you just get me up to speed?’”
It looks like the company will enter 2024 facing a proxy fight with activist investor Nelson Peltz, who wants two seats on the board — for himself and former Disney CFO Jay Rasulo. Peltz launched a similar adversarial campaign last year but backed off in February before a showdown at the annual meeting.
Warner Bros Discovery is up about 10% but off its high and from the $24 it traded at when Discovery and Warner Media merged in April 2022. CEO David Zaslav is focused on boosting cash flow and paying down the company’s massive debt, which stood at $45.3 billion at the end of the September quarter. Investors did not love that quarter, spooked in particular by a glum advertising outlook.
The ad market seems to have entered a new phase not beneficial for legacy media, which is the loss of pricing power, says one analyst. “Historically, as linear TV audiences shrunk, big companies could offset that by raising the prices they charged advertisers for the remaining viewers. In the last year, that game seems to have failed,” unless it’s sports.
With the April 8 two-year anniversary of the Discovery-Warner Media merger, WBD can explore deals without a big tax penalty. Zaslav has had conversations with Paramount’s controlling shareholder Shari Redstone and CEO Bob Bakish about a possible deal. Warners could also be a seller but that’s hard too, in part due to its huge stable of legacy cable networks.
Warner Bros Studio and HBO “are good businesses with solid creative trajectories, and, to us, the heart of the company,” said one analyst.
Paramount Global, meanwhile, fell 17%. It’s financially squeezed so seen as likeliest to do a deal sooner rather than later. Conversations with Zaslav as well as with Skydance Media CEO David Ellison have touched on both an outright sale as well as the possibility of Redstone selling her interest in NAI, the family holding company that houses her Paramount stock. Regular Paramount shareholders would not be getting any premium for their shares in that scenario, maybe one reason deal talk has not moved the needle on the stock. Skydance would not face regulatory hurdles.
Among big cap entertainment stocks, Netflix gained 63%. Studios are newly willing to license shows. It has stronger balance sheet than most of big media and a larger backlog of unreleased content of anyone but Disney, all of it dedicated to streaming. It has added an advertising tier and is seeing upside from a crackdown on password sharing.
Smaller Lionsgate had a fantastic run, up a whopping 88% as it ended the year closing the acquisition of eOne from Hasbro and announcing plans to combine the studio with a SPAC early next year in a separation from Starz that it hopes will unlock value.
Fox is still well liked by some analysts — no streaming losses and a focus on live sports and news. But investors like growth and some wonder about the end game. “It just is what it is,” said one. With linear television shrinking and the cost of sports rights rising, “What’s the narrative?”
Fox is facing a $2.7 billion defamation lawsuit by a second voting machine company, Smartmatic. Earlier this year, it agreed to an $800 million settlement just before trial in a first suit brought by Dominion Voting Systems.
In exhibition, the movie theater gig is still a tough one and the strikes disrupted production, pushing some big films back, which will slow the pace of new release in 2024. Cinema stocks ended the year mixed, with Cinemark – the No. 3 chain — showing sharp gains. The worlds’ biggest exhibitor AMC Entertainment plunged, but analysts don’t mind. It’s “finally trading roughly in line with its pre-meme historical multiple,” said one.
