U.S. stocks just wrapped their worst year since 2008 with media and tech leading the downward spiral. Streaming got messy, linear TV declined, a theatrical recovery sputtered, inflation, interest rates, unemployment and geopolitics turned ugly, recession jitters hit advertising, and M&A mostly ground to a halt. When it didn’t, it probably should have (i.e., Elon Musk’s tortured $44 billion takeover of Twitter).
“It’s a very complicated environment, and largely unprecedented,” said Moody’s SVP Neil Begley.
The SmackDown did have a winner: Sports entertainment engine WWE ended the year with a gain of 38%. The runner up — big broadcaster and new CW owner Nexstar, which rose 16%.
These were rare exceptions in a year of carnage for players big and small across all areas of entertainment. Disney, the only media stock in the Dow Jones Industrial Average, down 44%, didn’t just have a bad year, it had its worst year since 1974.
See the sector charts below.
Other lowlights: Fubo shares plunged nearly 90%. Roku, Snap and AMC Entertainment dropped by more than 80%. Warner Bros Discovery and Lionsgate fell by over 60%. From Netflix to Charter and Chicken Soup for the Soul, from Apple and Meta to Spotify and Cinemark, it was a sea of red. National CineMedia became a penny stock and risks being delisted. Behind the tempest, a brew of economic worries and industry-specific woes led by the painful re-evaluation of streaming priorities even as cord cutting continues to accelerate.
“This was as bad a year as I recall in the media sector,” lamented one longtime analyst.
The S&P 500 ended 2022 down 19.4% as of Friday’s closing bell. The S&P’s Communications Services, one of 11 sectors in the index, that includes most media and telecom companies, was its worst performer, down almost 40%. (The lone sector to rise in 2022 — energy.)
The DJIA lost 8.8%. The Nasdaq dropped 33%, the worst hit among the big stock market indexes, which was not unexpected given the massive disruption in tech shares.
Bucking the downtrend, WWE engineered a surprisingly smooth management transition after CEO Vince McMahon stepped down amid scandal. An internal probe determined he’d made inappropriate payments to a number of women in exchange for their silence about sexual relations. The company, with a suite of highly popular programming up for renewal soon at a time when the cost of sports rights is rising fast, is now run by co-CEOs Stephanie McMahon and former top CAA sports agent Nick Kahn, with former wrestler Triple H (Paul Michael Levesque) as chief content officer. Weekly shows Monday Night Raw and NXT that air on NBCUniversal’s USA Network, and Friday Night SmackDown on Fox, have five-year deals ending in 2024. Peacock retains streaming rights through 2026.
Wall Streeters see more bidders in the mix (as per other sports) and higher prices for the next rounds. Negotiations for the first two co-terminus deals are set to start during WrestleMania 39, WWE’s annual pay-per-view and livestreaming event.
It could also sell itself, with Comcast a likely buyer. There’s been speculation on that for years. Vince McMahon remains the controlling shareholder and some analysts wonder if he might have less interest in owning the company when he can’t run it. Meanwhile, flamboyant as the product may be, WWE’s financial management is conservative and it’s got a strong balance sheet with $450 million in cash and around $235 million in debt at the end of the September quarter.
As for Nexstar, the big broadcaster benefits from scale, including multiple stations in some markets with highly competitive political races; it surpassed $500 million in political advertising for 2022. And it’s also dialed down its ad exposure, with over half of sales coming from distribution, or retrans, a business historically resistant to economic downturns.
“It was the one broadcaster that actually hit the political numbers. It’s relatively under-levered, pays a healthy dividend and has been buying back a lot of stock,” noted one analyst.
Net leverage, a gauge of a company’s financial health, refers to net debt as a proportion of EBITDA — earnings before interest, taxes, depreciation and amortization. Debt is becoming a big issue again for companies in a world of high and still rising interest rates. Supply-chain disruptions lingering from Covid and the Russia-Ukraine War, among other factors, sent inflation soaring to 40-year highs, which caused the Federal Reserve to raise rates seven times in 2022.
Tegna, another broadcaster, was also up, gaining 14% likely driven in large part by its pending $24-a-share acquisition by Standard General. Advertising giant Omnicom ended the year higher too. But it’s an unusual state of affairs when you can count all gainers across media and tech on one hand.
Among losers, Fox only dipped 17%, less than most. It remains a bit of a Wall Street favorite, also fiscally conservative, big in sports and news and with less exposure to the streaming wars than rivals. Investors don’t like the suggested re-combination of Fox and News Corp. desired by Rupert Murdoch. That will play out next year.
As media enters 2023, Wall Street understands the big existential dilemma: the streaming genie is out of the bottle. But it is now demanding a clearer path to profits. There are no quick fixes in sight. However, there is a learning curve as the industry evolves. Streaming is still pretty new to everyone except Netflix and even the pioneer is trying to adapt.
“Stocks had a horrible year, but to flip it, one could argue that they’re already starting to reflect” most of the bad news, said one investor — or at least that’s the hope.