Analyst Brief: Investing in Media and Entertainment Stocks

Investing In Media and Entertainment Industry Stocks

The media and entertainment sector is recognized for its focus on growth and expansion rather than dividends and consolidation. This makes investments in media and entertainment an attractive option for investors seeking significant returns.

Investment in media and entertainment goes beyond purchasing tangible items such as DVDs or video games. Media and entertainment stocks, also referred to as entertainment equities or media shares, offer investors a way to access the media and entertainment industry. These stocks represent shares in publicly traded companies (listed on stock exchanges) that create or distribute media and entertainment content, like Disney or Netflix.

Well-established companies with solid reputations and committed fan bases might present more stable investment opportunities and reward long-term shareholder loyalty.

In recent years, the demand for media and entertainment content has seen consistent growth, fueled by a worldwide increase in leisure time and advancements in technology. Consequently, media and entertainment stocks hold the potential to deliver considerable returns for investors who conduct thorough research and maintain a long-term investment perspective. Our Ultimate Guide to Investing In Media and Entertainment Stocks is a good resource to read alongside this brief.

SWOT Analysis on Media and Entertainment Industry

We have undertaken a SWOT analysis on Media and Entertainment to give you a 360-degree perspective to help you decide if this is an investment opportunity for you or not.

Strengths

• Adaptability: The industry has demonstrated the ability to adapt to new technologies and platforms, such as streaming services, digital advertising, and mobile gaming, which have become increasingly popular in recent years.

• Diverse content offerings: The industry provides a wide range of content across various formats and genres, catering to different audience preferences. This diversification allows media and entertainment companies to cater to niche markets and explore innovative content strategies.

• Consolidation and partnerships: The industry has seen a trend of consolidation and strategic partnerships, which can provide companies with greater resources, increased market share, and more control over content creation and distribution.

Weaknesses

• Piracy and copyright infringement: The industry faces challenges related to piracy and copyright infringement, which can lead to significant revenue loss. Digital piracy continues to grow, with illegal streaming platforms and content-sharing websites impacting the industry's earnings.³

• High competition: The media and entertainment industry is characterized by intense competition, with numerous players fighting for market share. The rise of digital platforms has further intensified the competition, as new entrants, such as streaming services, challenge traditional media companies.¹

• Regulatory challenges: The industry is subject to a range of regulations that vary across countries, making it challenging for media and entertainment companies to navigate the complex regulatory landscape. These regulations may cover content restrictions, data privacy, and antitrust concerns.⁴

Opportunities

• Adoption of new technologies: Emerging technologies such as virtual reality, artificial intelligence, and 5G can offer media and entertainment companies opportunities to create new, immersive, and personalized experiences for audiences.⁵

• Expansion in emerging markets: Developing economies, particularly in the Asia-Pacific region, present significant growth opportunities for the media and entertainment industry. Rising disposable incomes and increasing internet penetration are contributing to the growth of these markets. ⁶

• Strategic partnerships and consolidation: The media and entertainment industry can benefit from strategic partnerships, mergers, and acquisitions that enable companies to expand their reach, diversify their content offerings, and improve their competitive positioning. ⁷

Threats

• Rapid technological advancements: The industry must continuously adapt to the fast-paced evolution of technology, which can be both costly and challenging. Companies that fail to keep up with technological advancements may face obsolescence. ⁸

• Fragmentation of audiences: With the proliferation of streaming services, social media, and various content platforms, audience fragmentation has become a significant challenge for media and entertainment companies. This fragmentation makes it more difficult for companies to retain and monetize their audiences.¹

• Regulatory changes and geopolitical risks: Media and entertainment companies face an increasingly complex regulatory landscape and must comply with varying content regulations and data protection laws across different regions. Additionally, geopolitical tensions may impact the international distribution of content or expose companies to potential boycotts or sanctions. ⁹

Key Investing Themes

Type of Market

Media and entertainment companies can be considered as part of the growth-oriented, cyclical, and consumer-discretionary investment categories. The industry includes various segments such as film, television, music, gaming, publishing, and digital content. Here's a detailed explanation of each category and sources to back them up:

• Growth-oriented investments: Media and entertainment companies often focus on expanding their market share, creating innovative content, and leveraging emerging technologies to reach new audiences. As a result, these companies tend to prioritize growth over dividends, making them attractive for investors seeking capital appreciation. ¹⁰

• Cyclical investments: The media and entertainment industry is sensitive to economic fluctuations, as consumer spending on discretionary items like movies, concerts, and games tends to rise during periods of economic growth and decline during downturns. Consequently, the performance of media and entertainment companies often follows broader economic trends, making them cyclical investments.¹¹

• Consumer discretionary investments: The media and entertainment industry falls under the consumer discretionary sector, which includes companies that provide non-essential goods and services. Since consumers can choose to cut back on discretionary spending during economic downturns, these investments can be more volatile than those in the consumer staples sector, which includes essential products like food and household items. ¹²

In summary, the media and entertainment industry is a growth-oriented, cyclical, and consumer discretionary sector, with companies focusing on expanding their market share, creating innovative content, and adapting to new technologies. Investors should be aware of the risks and potential rewards associated with investing in this industry, considering its sensitivity to economic fluctuations and reliance on consumer spending.

Themes to consider

• Streaming services: With the rapid growth of streaming platforms like Netflix, Disney+, and Amazon Prime Video, the media landscape is shifting towards on-demand content consumption. This has led to an increase in investment in original programming and the consolidation of media companies to compete in the streaming market. ¹

• Gaming and esports: The gaming industry has experienced significant growth, driven by advances in technology, the rise of mobile gaming, and the increasing popularity of esports. This creates investment opportunities in game developers, publishers, streaming platforms, and esports event organizers. ¹³

• Virtual and augmented reality (VR/AR): The development and adoption of VR and AR technologies are transforming the media and entertainment landscape, creating new opportunities for immersive content and experiences in gaming, film, and live events. ¹⁴

• Personalization and data-driven strategies: Media and entertainment companies are increasingly leveraging data and analytics to better understand consumer preferences, personalize content offerings, and optimize advertising strategies. This trend has led to investments in data analytics tools, artificial intelligence, and machine learning technologies. ¹⁵

• Direct-to-consumer (DTC) models: With the rise of streaming services and digital platforms, more media companies are adopting direct-to-consumer strategies, bypassing traditional distribution channels to reach their audiences. This trend has resulted in investments in digital marketing, customer relationship management, and subscription-based business models. ¹⁶

By understanding these key investing themes, investors can identify potential opportunities and risks in the media and entertainment industry, as well as gain insights into the sector's future direction.

Investing Insights and Signals

These are the insights and financial or alternative signals which should give you prompts to investigate and do your own research and due diligence:

Top 10 Companies by Market Cap

1. Alphabet (NASDAQ: GOOGL) - $1.34T

2. Meta Platforms Inc (NASDAQ: META) - $556B

3. Walt Disney Co (NYSE: DIS) - $181B

4. Comcast Corporation (NASDAQ: CMCSA) - $159B

5. Netflix Inc (NASDAQ: NFLX) - $154B

6. Activision Blizzard, Inc. (NASDAQ: ATVI) - $66B

7. Charter Communications Inc (NASDAQ: CHTR) - $53B

8. Warner Bros Discovery Inc (NASDAQ: WBD) - $36B

9. Electronic Arts Inc (NASDAQ: EA) - $34B

10. Take-Two Interactive Software (NASDAQ: TTWO) - $20B

Top 5 Media Stocks by Earnings 

1. Alphabet (NASDAQ: GOOGL) - $59.97B

2. Meta Platforms Inc (NASDAQ: META) - $23.20B

3. Comcast Corporation (NASDAQ: CMCSA) - $5.37B

4. Charter Communications Inc (NASDAQ: CHTR) - $5.05B

5. Netflix Inc (NASDAQ: NFLX) - $4.49B

Top 5 Media Stocks by Revenue: 

1. Alphabet (NASDAQ: GOOGL) - $280B

2. Comcast Corporation (NASDAQ: CMCSA) - $121B

3. Meta Platforms Inc (NASDAQ: META) - $116B

4. Walt Disney Co (NYSE: DIS) - $82B

5. Charter Communications Inc (NASDAQ: CHTR) - $54B

Top 5 Media Stocks by P/E Ratio

1. DISH Network Corp (NASDAQ: DISH) - 3.9

2. Nexstar Media Group Inc (NASDAQ: NXST) - 7.2

3. GANNETT CO INC. (NYSE: GCI) - 7.5

4. E W Scripps Co (NASDAQ: SSP) - 8.0

5. Paramount Global (NASDAQ: PARA) - 10.5

Top 5 Media Stock by Operating Margin

1. GANNETT CO INC. (NYSE: GCI) - 36%

2. Cable One Inc (NYSE: CABO) - 33.1%

3. Meta Platforms Inc (NASDAQ: META) - 32.9%

4. Nexstar Media Group Inc (NASDAQ: NXST) - 28.7%

5. E W Scripps Co (NASDAQ: SSP) - 24.1%

Predictions

Here are some predictions from industry and sector experts that outline what they think the future of the sector looks like.

• Global Entertainment & Media Outlook 2022–2026: Global Entertainment & Media Outlook 2022–2026: TMT | PwC

• 2023 media and entertainment industry outlook: 2023 Media & Entertainment Industry Outlook | Deloitte US

• Global Media & Entertainment Industry 2022-2027: Global Media & Entertainment Industry 2022-2027 | April 2023 Updated

• Tracking Media and Entertainment Industry Trends: Tracking Media and Entertainment Industry Trends

• Digital Consumers: Big Ideas 2023: Digital Consumers

• Entertainment: raising the curtain on risks in 2023: Entertainment: raising the curtain on risks in 2023 | AGCS

Further Research

Here are more links to further your research and understanding of this topic.

• Betting on social media as a news destination for the young

• MLB sets up local media group, could broadcast 17 teams

• UFC and WWE combine to create $21.4B entertainment company

• Barstool Sports is acquired by Penn Entertainment

• Esports Ecosystem in 2023: Key industry companies, viewership growth trends, and market revenue stats

• 5 Ways Media And Entertainment Industry Leveraging Big Data Analytics To Enhance Customer Relationships

Article Sources

1. Deloitte. Perspectives: 2023 media and entertainment industry outlook. Five trends shaping a new ecosystem of Engagement.

2. PWC. Global M&A Industry Trends: 2023 Outlook.

3. Statista. Media Piracy - Statistics & Facts.

4. EY.com. How are media and entertainment businesses reinventing in an age of transformation?

5. Ericsson. Building immersive VR entertainment. How to build the future of entertainment with 5G?

6. What's New In Publishing. Huge growth expected in media consumption: Opportunities opening up for publishers in emerging markets.

7. Merkle. Leveraging the Power of Strategic Partnerships in Media Planning.

8. Reuters Institute / University of Oxford. Journalism, media, and technology trends and predictions 2022.

9. PWC. Global Entertainment & Media Outlook 2022–2026. Five-year projections of consumer and advertiser spending data across 14 segments and 52 territories.

10. EY.com. The CEO Imperative: M&E industry investments are center stage as uncertainty builds.

11. Morningstar. Morningstar Stock Sector Structure PDF.

12. RSM. Inflation snapshot: Economic headwinds: Media and entertainment. The media and entertainment sector is faring worse than the overall economy.

13. Insider Intelligence. Esports Ecosystem in 2023: Key industry companies, viewership growth trends, and market revenue stats.

14. Globant. Four media and entertainment trends to watch for in 2023.

15. Polestar. 5 Ways Media And Entertainment Industry Leveraging Big Data Analytics To Enhance Customer Relationships.

16. S&P Global. Streaming video revolution: Traditional media adapts to a digital shift.