The Cowen Insight
COVID-19 will impact media companies in temporary and permanent ways. The business outcomes for different media ecosystem players range from little to no impact, to temporary/transitory business pressure, to permanently lower growth. In the latter category, we expect TV advertising to suffer a significant and relatively permanent decline as digital share gains accelerate.
COVID-19 Will Pressure Advertising
Near-term, a seemingly unavoidable recession will pressure advertising. For context, national advertising fell 11% in 2009 (excluding Olympics-related advertising), with TV at -3.4% and digital down -1.1%. We expect a -12% y/y decline in total TV advertising over the next twelve months, and little to no bounce thereafter. Growth in digital advertising will increasingly come at the expense of TV.
Theme Parks in for Heavy Damage, Will Likely Take Several Years to Recover
Location-based businesses are also under pressure from social distancing, which has closed several lines of business: theme parks, movie theaters, and live sports, the last bastion of traditional TV viewership. We note that Disney’s Parks and Resorts business did not fully recover from the 2008-09 recession until F13. On the flip side, OTT entertainment services stand to benefit from more time spent at home.
Expect Impact in Other Media Businesses As Well
Film results will see some impact from not only the closure of cinemas but also the shutdown of most film production, though we expect that pain to be spread out over several years due to the nature of film accounting. TV production is also suffering disruption, and so we expect a bit of revenue pressure there as well. An area we expect to remain relatively healthy is affiliate and subscription fees from MVPD/OTT services. However, we think there is some risk of incremental cord-cutting to the former given pressure on household budgets.
In the Times of COVID-19: Media Is Now a Lot More Challenging
In contrast to video games – where we expect the impact of COVID-19 to be benign – media fundamentals have been and will continue to be hit hard by the virus pandemic. Broadly speaking, we see two categories of impacts. First, the direct impact from antipandemic measures. This primarily impacts theme parks, theatrical exhibition, with a knock-on effect into downstream windows over the next couple of years, and to a lesser extent, television production that is sold to other content aggregators. Second, the impact from the recession that we believe the economy has already entered into. We expect this to primarily impact advertising and theme parks with some potential impact to consumer products.
We are thinking about media companies in terms of three distinct buckets:
1) Businesses which we think will see little or no impact from COVID-19
2) Businesses which will see an impact from COVID-19, but which should recover completely once conditions normalize
3) Businesses which will see an impact from COVID-19 and are at risk from not recovering back to pre-COVID-19 levels.
In the latter camp, we believe TV advertising is most at risk. We also think there is some risk of accelerated cord-cutting due to the combination of shrinking household budgets and the absence of sports programming. Finally, the future of the theatrical business will depend in part on what actions the government takes to assist theater chains, which appear likely to struggle greatly with the realities of social distancing.
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