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Wall Street Punishes Hollywood Stocks as Paramount Disappoints on Q3 Ad Sales

Warner Bros. Discovery plunges 4% ahead of its earnings report on Thursday as investors fear inflation will dent financial results

Investors punished shares of Hollywood’s major studios on Wednesday after Paramount Global reported that advertising sales slumped during the third quarter, and executives project there won’t be any improvement during the final three months of the year.

Paramount spooked Wall Street when it reported profit fell 57% during the quarter, sending shares down nearly 10% during the first hour of trading. Entertainment stocks fell in tandem, with Warner Bros. Discovery giving up 4%, Disney 2% and Lionsgate 2.5%.

Advertising at Paramount, anchored by its CBS broadcast network, fell 4% from the year-ago period to $363 million during the quarter. Chief Executive Bob Bakish told analysts on a conference call that ad sales will continue to be soft for the foreseeable future for its television media division.

Bakish praised the company’s strong content offerings, and said he expects that the studio’s blockbuster hit “Top Gun: Maverick” will push revenue higher once it debuts on Paramount+ in the next few months. He also confirmed that Paramount will begin to raise streaming prices as the streaming war heats up against Disney, Warner Bros., and Netflix.

Paramount joined Comcast’s NBCUniversal in reporting sluggish ad sales, following Big Tech companies that last week teased what Wall Street might see when studios report results this week. Ad spending is definitively slowing from the small mom-and-pop business owners who advertise on Facebook to major international brand names hawking products on Amazon.

And that puts Hollywood’s leading entertainment conglomerates in a tough spot — robust ad sales are what’s keeping most of them from careening into the red. Studios are spending billions of dollars to pump up their streaming services and grow subscribers, which is what investors believe will be main revenue drivers as theatergoers dwindle and more consumers cut the cord.

“Sentiment in the online advertising space has softened of late, with more anecdotes of budget cuts as well as advertisers holding back some budget in hopes of a fourth-quarter flush,” UBS analysts declared. “Looking into ’23, we think planning amidst this level of macro uncertainty sets the stage for below-consensus growth in ’23.”

Warner Bros. Discovery and Lionsgate are the next studios to report results on Thursday, AMC Networks on Friday and Disney is slated for next Tuesday.

What’s at stake is stock performance. Investors are left wondering about the future of Hollywood’s streaming ambitions and how much advertising can be drummed up during an expected downturn — especially after this year’s ad spending was goosed by a record $7.5 billion spent on political ads for this year’s midterm elections, according to the ad-tracking firm AdImpact

Entertainment conglomerates would be especially hard hit as TV advertisers reduce budgets, families cancel summer vacations to Disney World and Universal studios and more disruption ahead for streaming services.

Paramount shares fell nearly 12% in the first few hours of trading, and is down nearly 50% so far this year at $16.93.

Disney’s shares lost a few percent during the trading session, and is down nearly 34% for the year at $103.85. Warner Bros. Discovery’s stock slipped 3% and is down nearly by half this year at $12.96. Lionsgate shed 2% to $8.19, while its year-to-date fortunes have slipped about 52%. Netflix is down 2% during the session at $280.67, a 53% decline on the year.