Like the villain in a slasher-movie franchise who can't quite stay dead, recession fears have wobbled back on their feet, ready to scare everyone again — and Hollywood is no exception.
Not since mid-2022 has an entertainment industry felt the looming shadow of the R word creeping overhead, but make no mistake: The nervous anticipation is back. And as if showbiz can't seem let too long go by without a fresh crisis — the Los Angeles fires, dual strikes, COVID — the prospect of a new pressure to crush the business anew is right on time.
From a sagging U.S. stock market to alarms over inflation and tariffs, economic indicators have come to define a new Republican administration led by a president who has gone so far as to publicly acknowledge that a recession may be something of a short-term sacrifice the nation may need to make for its long-term benefit.
When first-quarter earnings season for media companies commences next month, it will be interesting to see if any CEO dares plead for investors to demonstrate that same patience knowing the potential fallout a recession could have on their industry.
And as was the case a few years ago, whether a recession is actually going to happen or not almost becomes beside the point; it's the anticipation of the possibility that triggers the shockwaves of anxiety that could start to ripple in some familiar patterns, beginning with upfront market season getting underway in the coming months, when the economic jitters will almost surely shrink ad budgets.
The only question impossible to answer at this early stage is whether these headwinds could cast enough of a pall to depress media conglomerate stock prices or, worse, prompt more layoffs in a sector that's been put through that wringer enough in recent years.
But don't be surprised when Q1 earnings rolls around to hear moguls rely on the tack they've taken historically, which is the sector's ability to ride out any macroeconomic doldrums by positioning entertainment as a cheaper alternative to higher-cost options for consumer spending at time when there could be increasing talk of tightening belts across the U.S. beyond just eggs and other groceries.
New survey data of U.S. consumer spending sentiment in the first quarter of the year from McKinsey & Company reinforces this notion. "Entertainment at home" was cited as the spending category consumers were committed to spending "the same" amount on for the next three months — more than 20 other categories, including travel, apparel, footwear and alcohol.
But there is an interesting double-edged sword to this data point. While 67% was the highest percentage that indicated "the same" spending for "entertainment at home," that category also registered the lowest percentage — 11% — of consumers who said they would spend more.
So while consumers are clearly loath to cut such must-haves as streaming services and console video games from their budget, they are also currently not in the mindset to start increasing that spend either, which isn't exactly welcome news to those in the content business.
McKinsey also asked consumers about their intent to "splurge" on various categories in the next three months, and in that regard "entertainment at home" ranks more in the middle of the pack. However, when the data is broken down across generational levels, Gen Z respondents showed far more willingness to splurge than other age groups.
While a wide range of industries could be hit harder than entertainment by a slowdown in consumer spending, just because Hollywood proved durable in previous recessions doesn't mean history will repeat itself precisely as it did in 2022 or years prior.
The streaming business finds itself in a very different shape than the last time a recession cloud hung over entertainment: Netflix long walked away the winner of the sector, but the remaining SVOD players are operating a financially healthier business, with their previously runaway spending habits on programming now firmly in check.
Nevertheless, streamers are increasingly facing criticism for price inflation that could get additional scrutiny in a recessionary environment and perhaps induce more bundling experiments or even the long-anticipated but delayed M&A binge that would consolidate more than one competitor under one brand.
Elevated price concerns also won't do any favors to a pay TV business slowly being undone by cord-cutting or a theatrical business coming off a horrid first quarter with hopes of seeing the same dynamic it saw in 2024, when a slow start was somewhat compensated for by a much stronger summer that saw momentum carry through much of the rest of the year. But again, no guarantee that history repeats itself.
A new survey out last week from Tubi and Harris Poll found consumers are spending $129 combined in a month on streaming services and pay TV subscriptions. That represents a 7.5% lift, far in excess of the 2.9% increase in the overall 2024 consumer price index.
And as the McKinsey data shows, for "out-of-home entertainment" options such as theme parks or concerts — where ticket concerns became a bona fide political issue during the Biden administration — price sensitivity could become an even bigger issue, which could be impactful on the bottom line at Disney, Comcast and Live Nation during the summer.
It's not just that Hollywood could be entering a rough period, it's that it would be a rough period following another rough period and a rough period before that. Considering there are sectors of the media business still trying to shake off the damage done by COVID, the cumulative effect of a recession on top of all that just may be more damaging than viewing the impact of a recession in a vacuum.
If that's got media moguls already reaching for their Xanax, it's entirely understandable.
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