Plunges in global markets are roiling shares of all stripes. Here’s why media investors need not worry about the wild swings — for now
Gut-punching declines in stocks so far this year may revive memories 2008’s spiraling markets, but media companies can take heart: So far, the only legitimate worries are familiar.
Wednesday’s market downturn — the Dow Jones Industrial Average fell by more than 500 points before rebounding to close down 249, or 1.6 percent — has been spurred by fears of economic slowdown in China and repercussions of slumping oil prices.
But neither of those have immediate impact on entertainment companies.
For now, investors in the entertainment sector can ignore the chaos and focus on worries that already existed: What will happen as technology changes consumers’ habits faster than traditional companies can keep up?
But there can be an upside for entertainment conglomerates even if the bottom falls out of the markets. “People like to be entertained even when the world is ending — sometimes even more so,” Andy Hargreaves, media analyst at Pacific Crest, told TheWrap.
Though the recent stock upset have been relentless so far this year, Barrington Research analyst James Goss noted it lacks evidence of the kind of contagion that will spread beyond the sectors directly effected.
That contrasts with the 2008 downturn, when problems with mortgage-related securities infected not only financial companies but also any company that invested in them.
Problems began to emerge for media companies only after the financial crisis had mostly passed, when the economy eventually dried up and the advertising business began to take a hit.
“That was a fundamental economic problem that came as a surprise. Right now, that hasn’t happened,” Martin Pyykkonen, Rosenblatt analyst covering media and Internet stocks, said.
Investors seeking a precedent may want to look a bit further back, to 10 years ago when Internet also emerged then as a potential threat to media companies. Fortunately, Goss said, “most of the traditional media companies found a way to incorporate an Internet strategy into their own business then.”