Though the economy wasn’t completely shut down in 2021, life and business were hardly normal. Despite those less-than-normal conditions, investors were optimistic and the overall stock market flourished.
But not every sector is cheering as we ring in the new year.
As of Dec. 27, the S&P 500 hit record highs and rose about 30% in 2021; however, most of the major media stocks lagged. Of the biggest closely watched media companies, only Lionsgate and AMC Entertainment outperformed the S&P 500 in 2021. AMC has retail investors on Reddit to thank for its wild rise this year. Even Netflix, which many would argue had a pretty good year, only jumped 17% this year.
While it is impossible to draw accurate predictions for the new year amid the ongoing global pandemic, here are key themes in the media industry to keep an eye on in 2022:
Return to Subscriber Growth
Whether we like it or not, streaming is still the most important growth story in media. 2022 will be the most critical year yet for the major streaming competitors, and only the strongest will survive. The COVID-19 pandemic accelerated streaming subscriptions in 2020, but those sky-high growth figures fell back down to earth in 2021, even for a powerhouse like Disney.
After a tepid start to 2021, Netflix’s winning content strategy came to the rescue in the second half of the year. Its international megahit “Squid Game,” gave a big boost to its overall subscriber count, and the streaming giant added 4.4 million global paid subs in Q3, bringing its total to nearly 214 million.
The steady release of popular content has investors and analysts expecting a lot from the veteran streamer in 2022. Morgan Stanley analyst Ben Swinburne expects Netflix to end 2022 with about 245 million global subscribers, which is about a 35 million increase from last quarter’s reported figures.
Meanwhile, rival Disney+ struggled to meet both Wall Street and Main Street’s expectations in 2021 following a blowout 2020. After beginning the year above $300 billion in market value, Disney stock tumbled 14% in 2021, which sent the market cap down to just $278 billion as of Monday’s close.
Disney+ has a lot to prove in the upcoming year. The platform boasted a large content library from the get-go, but the main concern is that it doesn’t have enough diverse content for different audiences. Disney’s long-term Disney+ outlook remains unchanged, and the platform is expected to reach between 230 million and 260 million by the end of its fiscal 2024.
One major opportunity in the streaming wars is AVOD. While there are clear winners in SVOD, AVOD is still a growing space. The bull case for AVOD growth is that consumers will grow tired of paying for multiple streaming services and will look to free versions of some of the smaller streaming players.
While ViacomCBS’ Pluto TV and Fox’s Tubi are leading pure-play AVOD services, some SVOD services have expanded into an AVOD component, including NBCUniversal’s Peacock, ViacomCBS’ Paramount+ and WarnerMedia’s HBO Max.
The Consolidation Conundrum
Speaking of saturation and competition, 804 media and telecom deals were announced in 2021, a 27% increase from the previous 12-month period, according to PwC. And the M&A fever is expected to rage on in the new year. Standing out with a winning strategy in the streaming wars is hard, thus many companies have turned to consolidation in order to compete.
The biggest media megadeal this year was the WarnerMedia-Discovery merger, which is expected to close mid-2022. If the $43 billion deal closes pending regulatory approval, the merger has the potential to completely transform the streaming wars. It’ll be up to pending CEO David Zaslav to deliver results after managing to put together the deal.
Another hot commodity this year were content companies. A handful of companies, including Reese Witherspoon’s Hello Sunshine and “Cocomelon” maker Moonbug Entertainment, were snatched up, as the value of quality content remains sky high. It wouldn’t be surprising if some of the rumored deals of this year actually come to fruition in the new year.
Maintain Advertising Strength
One bright spot in the media industry this year was the advertising recovery. According to Magna, global advertising revenue soared 22% to all-time highs in 2021 compared with a 2.5% decline in 2020. The advertising data provider predicted global ad revenue will grow 12% in 2022, with 17% growth in digital ad formats and 3.7% growth in linear ads.
The continuous growth in digital advertising will further boost the revenues of social media companies such as Meta, Snap and Twitter in the new year. Though the three companies did see a slowdown in their Q3 revenue growth rates versus the same period in 2020, their revenues are still at record levels.
The biggest threat to ad growth in 2022 is the ongoing supply-chain disruptions. Though companies haven’t stopped pumping money into advertising, prolonged supply-chain issues could cause some major companies to pull back on advertising if the challenges persist.
Events over the past two years have been unpredictable, and 2022 will be shrouded in even more uncertainty as COVID variants continue to disrupt the recovery. But that doesn’t mean the media industry can’t bounce back in the year ahead. It could even be argued that because media stocks have pulled back quite a bit, it could be the perfect buying opportunity before the real recovery.
But whatever happens next year, one thing is certain in the media industry: Only the strongest will survive in this competitive landscape, and investors will want to see definitive evidence of a clear path to success. Otherwise, media stocks will have to brace for more pain ahead in 2022.