To say the macroeconomic environment is growing ever more challenging by the day would be an understatement. But some of media’s top execs aren’t sounding the alarm just yet.
This week’s 24th Annual Credit Suisse Communications Conference almost felt like an episode of “The Twilight Zone”: They seemed to be living in a completely different reality than everyone else during a week when stocks fell into bear market territory, inflation was at 41-year highs and the Federal Reserve raised interest rates by 75 basis points.
Together with a tight labor market and ongoing supply chain disruptions, all signs point to a recession on the horizon. But judging by the tone from some execs at the conference, they’re not worried at all. On Tuesday, Fox Corp. CFO Steve Tomsic acknowledged the macroeconomic challenges while noting he believed Fox’s strategy was sound.
“If anything, the things that have happened macro, or even in the industry, really have served to highlight our strategy, and it’s a strategy that distinguishes us from our peers rather than tries to emulate them. And it’s served us incredibly well,” Tomsic said.
For theme parks operator NBCUniversal, things are looking good for now. When asked about rising energy costs and whether that has impacted theme parks, CEO Jeff Shell said they were seeing absolutely no impact. “If you landed from Mars and looked at our numbers for our theme parks and tried to discern if there was inflation or not, there’s no impact on our business.”
However, Shell noted that even as there were no signs of impact on NBCU’s business yet, he was still concerned about the macroeconomic environment.
Perhaps the only aspect of the media biz that execs would admit had seen somewhat of an impact was the advertising market. After being “on fire” last year, Shell said the ad market this year is weaker in comparison.
Paramount Global CEO Bob Bakish mentioned that advertising has been a little “choppy” as a result of the economy and inflation. “But net-net, the construction of our company is quite sound for an inflationary time, and we’re going to manage through it,” he said.
Jon Steinlauf, chief U.S. advertising sales officer at Warner Bros. Discovery, pointed to supply-chain issues as the “overarching problem in TV ad sales for the last 12 months.” But he expressed optimism that these issues were improving, albeit unevenly across multiple key advertising categories. While he noted progress in travel, retail and entertainment, he characterized automotive and tech as having been slower to bounce back due to chip-set shortages.
The sharp increase in interest rates will make borrowing costs surge, and companies with weaker balance sheets will have to scale back on spending and borrowing as a result. Though the ripple effects are delayed, higher interest rates also have a trickle-down effect on consumer spending, which could spell big trouble for an economy in which consumer spending accounts for 75% of the overall economy.
When rates are higher, consumers have less disposable income, which could mean cutting back on discretionary spending such as travel and leisure.
The Bureau of Labor Statistics Consumer Price Index report, which measures how much consumers pay for goods and services, showed June 10 that prices rose a whopping 8.6% in May from a year earlier, which was the fastest rate of increase since December 1981. Surges in food and energy prices pushed overall prices higher.
If the economic pressures begin to hit the consumer and consumer spending, serious trouble could lie ahead for media. Maintaining balance sheet strength will be critical, especially for those companies with streaming platforms still eyeing continued growth in an environment that is typically tougher on growth and expansion. The future is uncertain, but it will be wiser to prepare for the worst rather than deal with the consequences resulting from complacency.
When asked about any impact to Endeavor’s live events business, president Mark Shapiro responded that the company had not yet seen any impact as a result of the economic downturn. “By the way, we’re not dumb, stupid and just lucky. At some point, long term it can’t continue like this, but we’re not seeing any signs of that. We’re not seeing it in the brands that are spending around our events and the actual patrons coming to the events.”
Charter CFO Jessica Fischer acknowledged inflation had “marginal impact” on the cable operator’s costs but professed to be feeling confident about the road ahead.
“I know that there’s a lot going on in the economy — we’re not burying our head in the sand,” she said. “We’re out there working on all the issues that everybody else is, but in terms of impact that it has on our business and the growth of the business in the long term, I’m not that concerned.”
In all fairness, the job of these execs is to project an air of confidence in their businesses; what they say publicly probably doesn’t square with what they believe privately. Nevertheless, they run the risk of sounding unprepared for the rough road ahead if they come off a bit too blasé by failing to at least acknowledge storm clouds on the horizon. Big Media stocks are already in enough trouble.