For Immediate Release
Chicago, IL – September 4, 2024 – Today, Zacks Equity Research discusses Warner Music Group WMG, Lions Gate Entertainment (LGF.A), IMAX Corp. IMAX and CuriosityStream CURI.
Industry: Film and TV Production and Distribution
Link: https://www.zacks.com/commentary/2330820/4-film-television-production-stocks-to-watch-on-dull-industry-trends
The Zacks Film and Television Production and Distribution industry is witnessing a surge in demand for digital entertainment due to operational constraints faced by movie theaters, theme parks and cruise lines. This increased consumption of online media, music and news, driven by the work-and-learn-from-home trend, has been a boon for industry players like Warner Music Group, Lions Gate Entertainment, IMAX Corp. and CuriosityStream.
However, as more players enter the field, content costs are skyrocketing, putting pressure on profitability. This trend is forcing companies to spend heavily on original programming and exclusive rights to attract and retain viewers, which can strain financial resources and impact stock performance.
Industry Description
The Zacks Film and Television Production and Distribution industry encompasses companies engaged in the creation, distribution and exhibition of film and television content. The core activities revolve around producing entertainment for theaters, television networks, video-on-demand platforms, streaming services and other outlets that showcase such works. A notable company like Imax specializes in advanced motion picture technologies and immersive presentation experiences.
Industry participants are involved in the production and dissemination of movies destined for theatrical releases and direct-to-video markets, as well as television programming. The financial performance of these entities hinges greatly on the global box office success of their films, coupled with the number of new releases and the viewership ratings garnered by their television shows.
3 Film and Television Production Industry Trends in Focus
Over-the-Top Services Gain Prominence: Content creators are increasingly distributing through over-the-top (OTT) streaming services to capitalize on the popularity of their franchises. Their aim is to provide exclusive content and a differentiated viewing experience. However, streaming companies themselves are producing more original, award-winning programming to reduce licensing costs and reliance on third-party providers, which could undermine traditional content distribution strategies.
Binge-Watching Drives Consumption: Phenomena like binge-watching, wider Internet adoption and advancements in mobile, video, and wireless technologies have led consumers to frequently view content on smaller screens. To adapt to these new viewing patterns, industry players are pivoting to digital content distribution. The rise of digital capabilities provides easier access to consumer data, allowing production companies to leverage AI tools for better understanding audience preferences and creating resonant content. However, intense competition from streamers is forcing increased spending on content and marketing, hurting profitability.
Technological Advancement Aids Prospects: Exhibitors are adopting highly efficient, cost-effective laser projection systems to enhance image quality and the overall movie experience. Technologies like motion seating, immersive audio, interactive movies, AR and VR are expected to further elevate the viewing experience. Conversely, the growth of alternative distribution channels like home video, pay-per-view, streaming, VOD, Internet and broadcast TV is challenging traditional exhibitors.
Zacks Industry Rank Indicates Dull 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 #159, which places it in the bottom 37% 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 discouraging 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 bottom 50% of the Zacks-ranked industries is a result of a negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are pessimistic about this group’s earnings growth potential. Since Sep 30, 2023, the industry’s earnings estimate for 2024 has moved down 4.9%.
Despite the gloomy industry outlook, a few stocks are worth watching based on a strong earnings outlook. 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 Outperforms the Sector, Lags the S&P 500
The Zacks Film and Television Production and Distribution industry has outperformed the broader Zacks Consumer Discretionary sector but lagged the S&P 500 composite over the past year.
The industry has returned 20.1% in the above-mentioned period compared with the broader sector’s growth of 6.3%. The S&P 500 has risen 24.9% during the same time frame.
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 2.08X compared with the S&P 500’s 5.57X and the sector’s 1.92X.
Over the past five years, the industry has traded as high as 2.52X and as low as 0.92X, recording a median of 1.66X.
4 Film & Television Stocks to Watch Right Now
CuriosityStream: This Zacks Rank #2 (Buy) company is a factual entertainment company. Its features include stunning visuals and unrivaled storytelling to demystify science, nature, history, technology, society and lifestyle. The company’s programming is available to watch on TV, desktop, mobile and tablets. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The company has been expanding its subscriber base and content library, potentially positioning it for future growth. As cord-cutting trends continue and demand for specialized streaming services increases, CuriosityStream may benefit from this shift in consumer behavior. The company’s partnerships with distributors and educational institutions could provide additional revenue streams and market penetration.
In the second quarter, the company launched a distribution partnership with Harbour Rights, a leading international distribution company based in Hong Kong, to bring CuriosityStream’s premium content to various platforms, including TV, VOD, and inflight entertainment, in multiple territories across Asia.
CURI shares have surged 185.1% year to date. The Zacks Consensus Estimate for 2024 earnings has narrowed by 4 cents to a loss of 15 cents per share over the past 30 days.
Lionsgate Holdings: This Zacks Rank #3 (Hold) company is benefiting from strength in its Motion Picture and Media Networks segments. Robust viewership of content across all platforms, coupled with a rising subscriber base, is driving revenues for STARPLAY Domestic. Increasing domestic OTT and global subscriber count are expected to fuel top-line growth in the near term.
Lionsgate enjoys a strong pipeline of content on Starz’s platforms, boosting viewership and increasing the subscriber base of its OTT offerings. Management has been planning cautious content spending rather than chasing subscribers, therefore focusing on profitability. It will also explore bundling and packaging opportunities going forward. The acquisition of global entertainment platform eOne from Hasbro for $375 million in cash has expanded Lionsgate’s library by 6,500 film and television titles. The acquisition has boosted its portfolio of brands and franchises and is expected to strengthen its footprint in Canada and the United Kingdom.
Lionsgate shares have declined 28.7% year to date. The Zacks Consensus Estimate for fiscal 2025 earnings has moved south by 13.4% to 71 cents per share over the past 30 days.
Warner Music Group: This Zacks Rank #3 company is prospering from continued growth in Recorded Music licensing and Music Publishing synchronization revenues, including income from emerging streaming platforms. Furthermore, ongoing investments in international markets are anticipated to bolster its top line in the near term. Warner Music Group has shifted away from solely relying on celebrity influence and is now strategically targeting various elements of the value chain.
The company has invested in media platforms like HipHopDX, IMGN, Uproxx and several others, which possess significant potential to 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 India is also benefiting from its expanded partnership with Global Music Junction (GMJ), the music and entertainment subsidiary of JetSynthesys. The move is likely to establish Warner Music India as one of the largest players in the central music market in the country.
Warner Music Group shares have declined 20.1% year to date. The Zacks Consensus Estimate for the company’s fiscal 2024 earnings has moved north by 3% to $1.04 per share over the past 30 days.
IMAX: A robust slate of upcoming releases is expected to fuel IMAX’s top line in the near term, driven by gross box office collections of local language movies in markets like China, Japan, India, and South Korea. Strengthening partnerships with leading multiplex chains in regions such as France, the Philippines, Turkey and India presents a significant upside. The flurry of international deals will allow this Zacks Rank #3 company to deliver its premium sight and sound technology to more global audiences and stay relevant as it faces increasing competition from streamed content.
The recovery in the pace of theater system installations and higher IMAX maintenance sales are major positive factors. Moreover, a steady cash balance and flexible business model position the company well for expansion and market share gains.
The Zacks Consensus Estimate for IMAX’s 2024 earnings has moved north by a penny to $1.02 per share over the past 30 days. IMAX shares have risen 41.1% year to date.
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IMAX Corporation (IMAX) : Free Stock Analysis Report
Lions Gate Entertainment Corp. (LGF.A) : Free Stock Analysis Report
Warner Music Group Corp. (WMG) : Free Stock Analysis Report
CuriosityStream Inc. (CURI) : Free Stock Analysis Report