Tariffs, recession fears cast pall over US media earnings

Reuters

16-04-2025

Los Angeles, April 16 (Reuters) - Wall Street analysts offered a gloomy view of the first quarter for much of Hollywood, warning that economic uncertainty caused by President Donald Trump's erratic tariff plans has undermined consumer confidence and heightened fears of a recession.
The threat of an economic downturn would take a toll on an industry dependent on discretionary spending, squeezing TV advertising sales and theme park attendance, and spurring streaming service cancellations.
MoffettNathanson analysts estimate a recession could result in $45 billion in lost advertising spending this year, and risk advertising budgets permanently shifting away from traditional television to alternatives like streaming services or digital platforms.
'If we go through an economic downturn, the advertising business will be tough. More specifically, brand advertising platforms are likely to be hit harder than direct response platforms,' said John Belton, portfolio manager at Gabelli Funds, which owns shares in Paramount Global (PARA.O), opens new tab, Warner Bros Discovery (WBD.O), opens new tab, Fox (FOXA.O), opens new tab and NBCUniversal parent company Comcast (CMCSA.O), opens new tab. Gabelli Funds also owns shares in Netflix (NFLX.O), opens new tab, which is expected to report first-quarter results on Thursday, kicking off the earnings season for media firms.
Netflix, which dominates the streaming video market with a global subscriber base of more than 300 million, is expected to report that profit per share jumped more than 8% from a year ago, according to LSEG estimates. Revenue likely increased by more than 12% to $10.5 billion, reflecting growth across all regions.
An economic slowdown may prompt streaming subscribers to downgrade to more affordable plans, or cancel their subscriptions altogether. But Netflix is unlikely to see "a wave of churn" given its strong market position and popular content, wrote Bank of America media analyst Jessica Reif Ehrlich, though some cost-conscious subscribers may trade down to a cheaper price tier. Consumers have flocked to Netflix's ad-supported tier since its launch in late 2022.
Other streaming services, like Apple TV+ (AAPL.O), opens new tab or NBC's Peacock, may not be as lucky.
A downturn could prompt marketers to cut spending on television advertising, in anticipation of reduced demand, taking a toll on media companies including Warner Bros Discovery, which derived more than a fifth of its revenue from advertising in 2024.
Advertising also represents a significant portion of revenue for Facebook parent Meta (META.O), opens new tab, Snap (SNAP.N), opens new tab and Google parent Alphabet (GOOGL.O), opens new tab.
Some companies are likely to fare better than others in a downturn. Search advertising tends to do well during periods of uncertainty, said eMarketer analyst Ross Benes, because it captures consumers who are in the market to make a purchase.
Escalating tariffs on Chinese imports could affect social media platforms like TikTok and Facebook, which rely heavily on ad dollars from Chinese e-commerce companies such as Temu and Shein, Benes said.
Temu's average daily spending on Facebook, Instagram, TikTok, Snap, X and YouTube declined by a collective average of 31% in the past two weeks, compared with the previous 30 days, according to market intelligence firm Sensor Tower. Shein's daily spending across U.S. social media platforms is down by an average of 19% over that period.
Walt Disney Co (DIS.N), opens new tab could face a double-barreled impact from a slowdown, which would hit advertising and theme parks. The company's Experiences unit, which includes theme parks, cruise ships and consumer products, delivered more than 60% of Disney's operating income in the most recent quarter. A recession could lower revenue at Disney's domestic and international theme parks by $3 billion in 2025, according to MoffettNathanson's forecasts.
The novelty of visiting Epic Universe, a $7 billion expansion of Universal Orlando Resort that opens on May 22, may blunt the impact of a downturn, helping Comcast's (CMCSA.O), opens new tab NBCUniversal division attract vacationers to central Florida, Bank of America predicted.
North American movie ticket sales are down, too - nearly 12% from the same time a year earlier, according to Comscore.
"We're an industry which thrives on people having discretionary income. They will take their discretionary income and go to the movies," Michael O'Leary, president and CEO of trade organization Cinema United, said in an interview. "When there is uncertainty in the economic markets ... people tend to not use that discretionary income as much as they otherwise would."
Uncertainty about whether a film can be distributed in major markets like China makes it harder for studios to justify spending hundreds of millions of dollars on a major motion picture, said veteran media executive Jon Miller. China said last week it would restrict imports of Hollywood films in retaliation to tariffs.