COVID-19 cases are back on the rise due to the delta variant, and the entertainment and media sector is facing yet another wave of challenges if the spread persists.
While lockdown has not been enforced in too many regions around the globe for this newest surge, (1) AT-HOME ENTERTAINMENT consumption could see another spike as more consumers spend time indoors.
For instance, as the world was returning to normal, the initial boost to Netflix’s subscriber base was beginning to fade away. Netflix stock was stuck in a sideways trading range for most of 2021, but in the past month, jumped more than 7% as investors anticipate increased streaming time.
Roku was another streaming play that benefited amid the stay-at-home culture shift last year. After a blockbuster 2020 in which the stock soared nearly 150%, Roku’s market cap is currently sitting below $50 billion, and shares are underperforming the broader market in 2021. Investors could see Netflix and Roku play catch-up in the back half of this year if there is no improvement in the COVID situation.
On the other hand, if people remain stuck indoors, (2) MOVIE THEATERS AND STUDIOS would suffer again. While the box office this year has been nowhere near pre-COVID levels, theaters have seen some limited successes, like the release of Disney’s comedy starring Ryan Reynolds “Free Guy.” However, as negative COVID headlines emerged over recent weeks, audiences have been getting skittish again about being in theaters, which doesn’t bode well for the coming months.
Things aren’t looking so hot for movie theater chains like AMC Entertainment. AMC was a stock that saw massive volatility due to retail Reddit investors piling into the name. Despite some of the meteoric gains of this year, the actual financials of the company paint a much different picture. And it looks like more struggles again for the exhibitor.
The success of companies including AMC is tied to box office’s performance, and earlier this month CEO Adam Aron said if the domestic box office were to reach at least $5.2 billion, the company could see positive free cash flow by the fourth quarter. Well, according to Box Office Mojo, domestic box office raked in only about $63 million in the latest weekend ending Aug. 22.
Thus, the highly anticipated box office recovery might take much longer and prove more difficult than initially estimated as a result of the delta variant.
And it’s not just movie theaters. The (3) LIVE EVENTS business was seeing encouraging signs for a speedy return to normal as the vaccine was being rolled out earlier this year. However, American adults are also starting to grow more hesitant of attending concerts, according to the latest weekly Morning Consult survey. After seeing a steady increase in comfortability, the sentiment began to dip in August.
The list of canceled concerts and tours keeps growing, which is bad news for the live events companies like Eventbrite, Madison Square Garden Entertainment and Ticketmaster parent company Live Nation.
There hasn’t been any real cause for concern yet, but (4) THEME PARKS could also face the same challenges as concerts and movie theaters. There was a meaningful recovery in place during the second quarter for the theme parks, but much of that is poised to unravel if the delta variant spreads at the current pace.
While larger theme park operators like Disney and Comcast could survive another COVID surge, the smaller players in the space, like Six Flags, SeaWorld and Cedar Fair, may have a much harder time.
Despite the broader carnage, the (5) MEGA-CAP TECH GIANTS are part of the minority that will likely be fine even if the COVID situation worsens from here. After getting pummeled during peak pandemic, the advertising market came roaring back, and Big Tech was the big beneficiary.
Alphabet-owned Google reported total ad revenue jumped 69% from last year to $50 billion, and YouTube posted record ad revenue of $7 billion during its second quarter, an increase of 83% year-over-year. Ad revenue for social media companies Facebook, Twitter and Snap in Q2 was just as impressive.
As tech companies reported healthy top-line growth, their stocks rose in tandem. Over the past year, Apple stock jumped 19%, while Alphabet surged 77%, Microsoft rose 42% and Facebook was up 34%.
Even if there is a slowdown in the advertising revenue momentum, it is unlikely the market would come to a screeching halt like it did in Q2 of 2020. In addition, Big Tech isn’t the only group enjoying the ad boom. Traditional media companies are also seeing strong ad revenue even as they’re feeling linear TV ratings decline. As long as the cash continues to flow into advertising, Big Tech and traditional media companies should be able to weather the storm.
While there is still so much uncertainty about the COVID variant, if the trends from the past few weeks persist, the media industry would be best suited by preparing for a better way to navigate the uncertain environment once again.