The air at the “Magic Kingdom” is decidedly icy. Events leading up to Walt Disney Co’s (NYSE:DIS) fiscal second quarter subdued analyst forecasts. Nevertheless, as InvestorPlace feature writer James Brumley points out, “the company failed to trounce those tepid expectations.” While the crown jewel of media stocks is having an awful go of things, competitors can’t afford to relax.
That’s because ESPN was once again the conspicuous laggard for Disney. Although it’s still the top dog among sports channels, other entertainment alternatives have popped up. Additionally, it’s a double-edged sword. Viewership is shifting to online media outlets, while broadcasting rights for premium sports leagues only gets more expensive. Something had to give; hence, the mass pink slip distribution at ESPN.
The message couldn’t be more ominous towards media stocks.
Disney at least has the buffer of a world-class movie studio and a theme park and resort empire. But even with those beautiful assets, DIS stock is in ugly technical territory, having gapped down near no-man’s land.
And for media stocks without those safety nets? I’m not sure how long I’d want to stick around. The entertainment landscape overall has endured a paradigm shift. Popular “homemade” channels via Alphabet Inc’s (NASDAQ:GOOGL, NASDAQ:GOOG) YouTube are attracting millions of views and are available worldwide. Unless television programming is extremely compelling, even a modicum of attraction is no longer guaranteed.
Here are three media stocks that are at risk for joining Disney in the doghouse.
Media Stocks in Trouble: AMC Networks Inc
How many Asian American actors are featured on TV every week? If you’re on the production team of AMC Networks Inc’s (NASDAQ:AMCX) “The Walking Dead,” that answer is zero … which, if you think about it, is really strange.
Comcast Corporation (NASDAQ:CMCSA)-owned NBC found that out the hard way when its SNL show did a spoof of the original Star Trek. For those who don’t know, there’s an Asian character in the original Star Trek. SNL has never employed an Asian actor in its 42-year history.
Click to Enlarge Media stocks can’t afford to ignore diversity, not because of politics but because it lacks authenticity. Over and over, I am inundated with messages that Millennials love authenticity. So it’s simply disingenuous to create programming that makes Asian characters the equivalent of Sasquatch sightings.
And then AMCX tried to resolve this issue by releasing Into the Badlands. Even in the apocalypse, Asians are still doing their karate!
I’m not surprised to see AMC Networks in the position that they’re in. The company was doing really well prior to their poorly received Q1 earnings report. AMCX stock is now up a little less than 2% year-to-date. It’s staggering following the sharp loss from the earnings report, similar to the ratings for “The Walking Dead.”
The bottom line is that AMCX needs to do something right away to avoid the fate of other media stocks. A good start would be adding authentic storylines — and characters — in their programming.
Media Stocks in Trouble: CBS Corporation (CBS)
Mainstream media stocks like CBS Corporation (NYSE:CBS) are lagging because they’re run by illogical leaders.
Let’s consider the recent general election. “Everybody” hates President Donald Trump, but do they really? The brash billionaire has a 1.3 million vote deficit to former Secretary of State Hillary Clinton … though significant, it still means that 61.2 million people voted for Trump. That’s a population that CBS can’t afford to insult.
Yet this is exactly what they’re doing. On CBS Corporation’s “The Late Show with Stephen Colbert,” the host went on a vitriolic tirade against the president. This outburst was particularly beyond the pale because Colbert insinuated a Biblically intimate relationship between Trump and Russian president Vladimir Putin.
I think most of us have cracked jokes at Trump’s expense, and I’m guilty as charged. But at the end of the day, he is our president, and you don’t talk about our Commander-in-Chief like that.
Click to Enlarge CBS should recognize this but they don’t. This deliberate ignorance is alarming, because it all boils down to simple mathematics. Politically, the nation is roughly split down the middle. More liberals certainly exist, but not that many more. So every time CBS airs disgusting and borderline homophobic remarks, it’s only hurting its branding and image.
CBS is fortunate that it is counted among media stocks. In any other industry, insulting half the consumer base is bad business.
Media Stocks in Trouble: Discovery Communications (DISCA)
Discovery Communications Inc. (NASDAQ:DISCA) is a classic case of good news, bad news. The good news is that DISCA stock’s severe choppiness — similar to their show “Deadliest Catch” — has subsided. The bad news is that the trajectory is decidedly bearish. Against this year’s opener, DISCA is 7% in red ink, making it one of the poorer names in media stocks.
The standard explanation is that it missed its recent earnings target for Q1. However, it’s the reason for that miss that has many investors startled. DISCA management essentially admitted that cord-cutters — those abandoning paid TV subscriptions — are increasing in numbers. Of course, that is going to cut into both the top and bottom lines. Also, DISCA is falling well behind in the “it” sector — online entertainment channels.
Click to Enlarge The other challenge is that Discovery is running content that doesn’t appeal to the broad demographic. Americans have been falling behind in core math and science skills for decades. DISCA programming is largely scientific in nature and the other stuff is repetitive, reality TV content that again lacks authenticity.
Media stocks are on a tough road, but lacking a relevant online presence will make it even tougher.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.