The Zacks Film and Television Production and Distribution industry is benefiting from a spike in demand for digital entertainment, fueled by limited capacity and operational limitations in movie theaters, theme parks and cruise lines. Increased consumption of media, music and news over the web, triggered by the work-and-learn-at-home wave, has been a key catalyst for industry participants like News Corporation NWSA, World Wrestling Entertainment WWE, Lions Gate Entertainment (LGF.A) and IMAX Corporation IMAX. Companies have been focusing on a superior product strategy and prudent capital investments. Steady recovery in the advertising spending environment and resumption of production pipelines bode well for film and television production companies.
Industry Description
The Zacks Film and Television Production and Distribution industry comprises companies involved in film and TV production, distribution and exhibition. The main activities of the industry participants include the production and distribution of entertainment content to theaters, TV networks, video-on-demand platforms, streaming services and other exhibitors. Imax offers entertainment technology and specializes in motion picture technologies and presentations. Industry participants produce and distribute motion pictures for theatrical and straight-to-video releases besides TV programming. These players are heavily dependent on the box-office performance of their films, both domestically and internationally, the number of film releases, and the ratings of TV shows.
3 Film and Television Production Industry Trends in Focus
Over-the-Top Services Gaining Prominence: Companies involved in content creation are looking to distribute content through over-the-top services to leverage the popularity of their franchises. With this, they are looking to provide exclusive content and a differentiated experience. However, streaming companies are increasingly producing original and award-winning feeds to reduce licensing costs and excessive dependence on third-party content providers. This is likely to hurt industry participants’ content distribution strategy.
Binge-Watching Driving Consumption: Factors such as binge-watching, deepening Internet penetration, and advancement in mobile, video, and wireless technologies have got viewers glued to small screens. In order to keep pace with new consumption patterns, industry participants are turning to digital content distribution. The emergence of digital capabilities is making consumer data easily available to companies. With the use of AI tools, production houses are gaining a better understanding of user preferences. This helps them produce content that strikes a chord with viewers. However, increasing spending on content and sales & marketing is hurting profitability due to stiff competition from streaming players.
Technological Advancement Aids Prospects: Exhibitors are turning to highly efficient and cost-effective technologies like laser-based projection systems to enhance image quality and the entire movie experience. Additionally, the use of technologies like motion seating, immersive audio systems and interactive movies among others is expected to enhance the viewing experience. The increasing adoption of AR and VR technologies bodes well for industry participants. However, the evolution of alternative motion picture distribution channels such as home video, pay-per-view, streaming services, video-on-demand, Internet and syndicated and broadcast television is hurting exhibitors.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Film and Television Production and Distribution industry is housed within the broader Zacks Consumer Discretionary sector. It carries a Zacks Industry Rank #49, which places it in the top 20% of more than 249 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates encouraging near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms 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 on 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.
Industry Beats S&P 500, Sector
The Zacks Film and Television Production and Distribution industry has outperformed the Zacks S&P 500 and its own sector in the past year.
The stocks in this industry have collectively gained 25.7% compared with the S&P 500’s return of 16.9% and the Zacks Consumer Discretionary sector’s increase of 14.2% over the same time frame.
One-Year Price Performance
Industry's Current Valuation
On the basis of the trailing 12-month price-to-sales (P/S), a commonly used multiple for valuing Film and Television Production and Distribution stocks, the industry is currently trading at 1.52X compared with the S&P 500’s 3.85X and the sector’s 1.94X.
Over the past five years, the industry has traded as high as 2.48X and as low as 0.92X, recording a median of 1.52X as the chart below shows.
Trailing 12-Month Price-to-Sales (P/S) Ratio
4 Film & Television Stocks to Watch Right Now
News Corporation: The company is benefiting from prudent strategic efforts, which include the ongoing digital transformation of the business, and investments in Digital Real Estate Services, Dow Jones and Book Publishing segments. News Corporation has been diversifying revenue streams through strategic acquisitions and operational enhancement. It is optimistic about acquisitions of the OPIS and Base Chemicals businesses that are likely to enhance Dow Jones’ information services business.
News Corporation is well-positioned to grab opportunities generated from technology sharing across geographies and businesses, and bundled offerings of enriched content to consumers and advertising partners.
News Corporation’s shares have gained 10.8% year to date. The Zacks Consensus Estimate for this Zacks Rank #2 (Buy) company’s fiscal 2023 earnings has moved north by 12.8% to 44 cents per share over the past 60 days. You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: NWSA
World Wrestling Entertainment: The company anticipates generating record revenues in 2023. This suggests a likely increase in media rights fees from flagship weekly programming and premium live events, as well as a full live event touring schedule, and higher advertising and sponsorship revenues. WWE projects adjusted operating income before depreciation and amortization (OIBDA) in the range of $395-$410 million for 2023.
World Wrestling Entertainment’s focus on expanding original content and creating new content, driving subscriber count, raising content rights fees and monetization of video content across digital and DTC platforms bodes well.
Shares of this Zacks Rank #2 company have risen 59.4% year to date. The Zacks Consensus Estimate for World Wrestling’s 2023 earnings has remained steady at $2.74 per share over the past 60 days.
Price and Consensus: WWE
Lionsgate Holdings: The company is benefiting from a strong pipeline of content on Starz’s platforms that boosts viewership and increases the subscriber base of its OTT platforms. Management has been planning to spend cautiously on content and not chase subscribers, therefore focusing on profitability. It would now also look for bundling and packaging opportunities.
Lions Gate and Starz will be separated by September 2023 as planned. This will help the two core businesses to pursue separate strategic and financial paths, which would ensure better results. Strategies are being made so that both entities have a strong balance sheet by the end of the year.
Lionsgate’s shares have returned 55.7% year to date. The Zacks Consensus Estimate for this Zacks Rank #3 (Hold) company’s fiscal 2023 earnings has moved south by 11.8% to 45 cents per share over the past 60 days.
Price and Consensus: LGF.A
IMAX: IMAX is benefiting from the continuous expansion of theatres, particularly in the United States. Greater China continues to be IMAX’s largest market, with 793 IMAX Systems and 200 systems in backlog. The impressive performance of Guardians of the Galaxy 3, The Blue Angels and the Spider-Man: Across the Spider Verse benefited IMAX.
Moreover, a steady cash balance and flexible business model position it well to expand and increase market share. With the release of big movies like The Flash, The Little Mermaid and Lost in the Stars, IMAX’s revenues are expected to rise in the rest of 2023. The company expects to record $1.1 billion in global box office for 2023.
Recent partnerships with leading multiplexes in various countries like North America, Vietnam, Mexico and Morocco are a big positive. In May, this Zacks Rank #3 company announced an expansion of its long-standing partnership with Kinepolis for eight IMAX systems across Europe and North America. It collaborated with EVO Entertainment for eight new IMAX locations across Texas and Florida and Cinemex for six new IMAX locations in Mexico.
The Zacks Consensus Estimate for IMAX’s 2023 earnings has moved south by 1.3% to 75 cents per share over the past 30 days. IMAX’s shares have risen 16.5% year to date.
Price and Consensus: IMAX
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