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The Zacks Media Conglomerates industry has been flourishing recently, driven by the consumer shift toward over-the-top (OTT) content. Major players like Disney (DIS - Free Report), Paramount Global (PARA - Free Report), and Reservoir Media (RSVR - Free Report) are aggressively investing in developing original music, shows, and fresh content to captivate and retain Gen Z and millennial subscribers.

Moreover, the industry's prospects are bolstered by the availability of cost-effective alternative packages, such as skinny bundles, which are designed to entice consumers with lower prices compared to traditional offerings.

Conversely, the industry has been grappling with waning broadcast television ratings and diminishing demand for home entertainment sales of theatrical content. Furthermore, advertisers' tepid spending amid rampant inflation and elevated interest rates pose a formidable concern for industry players.

Industry Description

The Zacks Media Conglomerates industry encompasses companies engaged in developing and distributing a diverse range of content, including shows, movies, music, educational materials, and digital learning services. These entities cater to the evolving consumer preferences for OTT content, whether through subscription-based video-on-demand or advertising-supported platforms.

Advertising remains a significant revenue stream for media industry participants. Additionally, the burgeoning metaverse presents a promising market for media companies to explore.

Subscription prices present potential for growth, driven by an expanding subscriber base. However, the industry also faces challenges such as declining broadcast television ratings, reduced demand for home entertainment sales of theatrical releases, and the growing trend of cord-cutting.

3 Trends Shaping the Future of the Media Industry

Original Content Driving Growth: Media companies' capacity to generate advertising revenues beyond traditional TV platforms, such as websites and other digitally consumed channels, unlocks increased opportunities for targeted advertising.

The growing consumer preference for subscription services over linear pay-TV and rental or outright purchases has compelled industry players to adapt their business models. Media companies are innovating with original content to attract and retain subscribers.

High-Speed Internet Demand Acting as Key Catalyst: The burgeoning demand for high-speed Internet, including broadband, has benefited media industry participants. Improving Internet speed has fueled the demand for high-quality videos and the trend of binge-watching. Furthermore, a strengthening broadband ecosystem in international markets, coupled with the proliferation of smart TVs, is expected to drive growth.

Cord-Cutting and Matured PayTV Industry Hurting Prospects: The media television industry is undergoing a rapid evolution of distribution platforms, embracing new players and advanced technologies.

The declining profitability of residential video services due to rising programming costs and retransmission fees has made survival challenging for traditional companies. Additionally, the heightened demand for on-demand content has led to the mushrooming of streaming service providers, making it increasingly difficult for traditional media television companies to maintain their viewer base.

The Zacks Industry Rank Indicates Bright Prospects

The Zacks Media Conglomerates industry is housed within the broader Zacks Consumer Discretionary sector. It carries a Zacks Industry Rank #64, which places it in the top 26% of more than 250 Zacks industries.

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates continued outperformance in the near-term. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.

The industry’s position in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are optimistic about this group’s earnings growth potential.

Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.

The Industry Underperforms Sector, S&P 500

The Zacks Media Conglomerates industry has underperformed the broader Zacks Consumer Discretionary sector and the S&P 500 Composite over the past year.

The industry has returned 4.5% in the above-mentioned period compared with the broader sector’s growth of 5.7%. The S&P 500 has risen 24.7% during the same time frame.

One-Year Price Performance

Image Source: Zacks Investment Research

The Industry's Current Valuation

On the basis of the trailing 12-month P/S, a commonly used multiple for valuing media companies, we see that the industry has recently been seen trading at 1.04X compared with the S&P 500’s 4.1X and the sector’s 1.88X.

Over the past two years, the industry has traded as high as 1.44X, as low as 0.79X, and with a median of 1.06X.

Trailing 12-Month Price-to-Sales (P/S) Ratio

Image Source: Zacks Investment Research

3 Media Stocks to Watch - Reservoir Media

This Zacks Rank #1 (Strong Buy) company benefits from its strong content portfolio. Its publishing catalog includes historic compositions written and performed by greats like Joni Mitchell, The Isley Brothers, Billy Strayhorn, Hoagy Carmichael, and John Denver.

The company announced plans to raise up to $100 million through an offering of various securities. The move signals Reservoir’s ambition to fuel further growth through acquisitions while reducing its debt. In addition to acquisitions, Reservoir also plans to use a portion of the proceeds to reduce its debt burden, potentially improving its financial flexibility and creditworthiness.

The Zacks Consensus Estimate for the company’s fiscal 2025 earnings has moved up by a penny to 8 cents per share over the past 30 days. The stock's shares have risen 9% year-to-date.

Price and Consensus: RSVR

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Disney

This Zacks Rank #3 (Hold) company’s assets include movies, television shows and theme parks. Disney is benefiting from a solid revival in its international theme park and resort businesses.

Recent attractions like the Frozen theme land at Hong Kong Disneyland and Walt Disney Park in Paris, as well as the Zootopia theme land at Shanghai Disney, are expected to boost the prospects of the theme park business. Disney’s iconic California theme park is poised for a magical transformation, with significant investment amounting to at least $1.9 billion over the next decade.

Disney’s focus on sports streaming, particularly Live Sports on ESPN+, is expected to attract more subscribers. The renewal of the MLB sports rights deal through 2028 and the agreement with Spanish club football’s first division, La Liga, further strengthened the portfolio of the company’s sports content.

The Zacks Consensus Estimate for the company’s fiscal 2024 earnings has moved north by 1.9% to $4.76 per share over the past 30 days. The stock's shares have risen 12.1% year-to-date.

Price and Consensus: DIS

Image Source: Zacks Investment Research

Paramount Global

Finally, this Zacks Rank #3 (Hold) company is a global media, streaming and entertainment provider, offering content through well-known brands like CBS, Showtime Networks, Paramount Pictures, Nickelodeon, MTV, Comedy Central, BET, Paramount+, and Pluto TV. It also operates Paramount Pictures.

Paramount is benefiting from steady viewership for its streaming services, boosted by the strong adoption of Paramount+ and global viewing hours of Pluto TV. Its expanding content portfolio includes originals like Behind the Music and Ghosts, as well as movies like Mission Impossible, which drives growth. Its plan to integrate Showtime with Paramount+ will further drive the subscriber base. Partnerships with Walmart and Verizon also bode well for Paramount+.

The Zacks Consensus Estimate for the company’s 2024 earnings has remained steady at $1.32 per share over the past 30 days. The stock's shares have lost 19.1% year-to-date.

Price and Consensus: PARA

Image Source: Zacks Investment Research 

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