All the madness Tinseltown has experienced over the past few months has forced investors interested in Hollywood stocks to ask an important question: Which companies will be at the forefront of the changes within Hollywood, and more broadly, the cinematic entertainment industry, over the next decade?
It has been more than half a year since the “#metoo” movement started, with former American film producer Harvey Weinstein now facing six charges related to various acts of sexual misconduct. Since then, several big-name actors have also come under fire for similar accusations.
According to those within the industry, this increased awareness of Hollywood’s dark side has started to — slowly — change how it operates.
It’s unlikely that this will be the end of the shocking stories regarding once-beloved actors and actresses, and although Hollywood is taking a step in the right direction to amend the ugly reputation espoused by the disgraceful actions of some within the industry, it will take a long time for things to truly change.
However, one thing is certain — things are indeed changing.
And it’s not just the #metoo movement that has started to take a dig at the way Hollywood works. The content of the films, the way they are viewed, who views them and who participates in their creation is also a big part of the change.
With that in mind, here are five Hollywood stocks to keep an eye on as the old ways begin to fade from the limelight.
Hollywood Stocks to Watch: Netflix (NFLX)
Investors who are looking for a direct play on the changes within Hollywood should take a serious look at Netflix (NASDAQ:NFLX) stock. When I last wrote about NFLX and its relationship to these changes, the NFLX stock price was at $192. In less than a year, it marched its way up to more than $400 — an increase greater than 110% — but after a rough Q2 earnings report, it has taken a sizable hit.
The source of the pain in Netflix stock? A significant miss on anticipated subscriber growth. To be exact, Netflix added only 674,000 U.S. subscribers compared to the estimated 1.23 million, and only 4.47 million international subscribers compared to the 5.11 million that experts expected. Since the Q2 report, NFLX is down more than 8% and it continues to decline as of this writing.
But is it all doom and gloom?
In the past, I have discussed how the cord-cutting movement has played heavily into Netflix’s dominance and how it stands a good chance against its competition, but with slowing domestic subscriber growth and continually stronger competition on the horizon, it may be time to start reevaluating the bullish case for NFLX stock.
Still, in terms of the company’s overall influence on the cinematic entertainment industry, its impact is undeniable: NFLX original programs raked in 112 Emmy nominations, outclassing HBO’s 108 nominations and making it the No. 1 studio among its peers. And it’s still making its way into developing its own Netflix Original movies, with more than 80 expected to be released this year.
But don’t just take my bullishly stubborn word on Netflix stock. According to InvestorPlace contributor Will Ashworth, the deeper you look into the facts, there is still room for optimism regarding its subscriber growth:
“If you look at the year-over-year net additions, you’ll see that it added 4.47 million subscribers internationally in the second quarter, 330,000 more than it added in the same quarter a year earlier.
As long as it keeps adding U.S. subscribers — albeit in smaller numbers — the international subscribers will take care of growing its profits.”
Don’t count NFLX stock out just yet — it will remain a heavy influence on the way we view cinematic entertainment in the years ahead and it will continue to adapt as Hollywood changes.
Hollywood Stocks to Watch: AMC Entertainment (AMC)
Speaking of change within Hollywood, it might be strange to see AMC Entertainment (NYSE:AMC) on this list. Movie theaters have struggled to adapt to the advent of streaming entertainment from companies like Netflix — and in the past, I have generally thrown movie theater stocks under the bus. But upon further examination, there is still an ounce of hope left for traditional movie theater chains like AMC.
The source of that hope?
Changes to the theater-going experience that help convenience-oriented millennials and others justify the trip outside their homes. Most recently, AMC stock got a boost on news that its AMC Stubs program had exceeded 15 million members, up 650% from subscription numbers of 2 million members in 2016.
Clearly, people are still interested in seeing movies in the theaters. They just don’t want to pay for tickets at the rates they did before.
The Stubs program allows members to see up to three movies (in several different formats) a week for $19.95 per month. Although that might sound like an obscene amount of movie viewing, the idea is that movie-goers might also be interested in viewing the same film more than once in a week (something I’ve certainly done on more than one occasion), or have a triple-feature day, rather than multiple visits.
The flexibility in this program is a primary part of its appeal. With three- and 12-month programs in the works, it’s a means for AMC to convince its customers to keep coming out of the house to see the latest Hollywood blockbuster, or even something they might otherwise have passed on.
The last time I wrote about Hollywood stocks to buy and sell, I cited diminishing movie theater attendance as a reason to be bearish on stocks within the space. However, in 2018, attendance through May 6 has increased “3.3% over 2017 and almost 10% from four years ago,” making it the best theater attendance over that period since 2004.
And now that former competitor Helios and Matheson (NASDAQ:HMNY) has its back on the ropes — dropping roughly 99% from its all-time high stock price set in 2017 — after the nuances of Movie Pass’ unsustainable business model were thrust into the spotlight, AMC has an even greater chance at making a comeback and proving that old-time viewing methods are here to stay, even as Hollywood itself continues to change.
To top it all off, AMC just announced that it is teaming up with Facebook (NASDAQ:FB) to increase the ease of movie-ticket purchasing. Although it might be very different from Netflix, AMC Entertainment has continually proven that it also knows how to keep fighting against the odds. Keep an eye on its Aug. 1 earnings to see if these moves are having an impact.
Hollywood Stocks to Watch: Disney (DIS)
One of the most exciting themes investors have been keeping track of this year is mega-mergers that were previously thought to be impossible because of potential antitrust violations. It all started with the merger of AT&T (NYSE:T) and Time Warner (more on that later), which set a precedent that other mergers of similar scope were possible. Dovetailing off of that merger, the already-existing deal with Disney (NYSE:DIS) to buy out much of Twenty-First Century Fox (NASDAQ:FOX, NASDAQ:FOXA) gained significant strength.
Disney has increased its offer for the Fox properties to $71 billion, up significantly from the initial $52 billion offer. Although the Disney-Fox merger is not yet a done deal (final approval will likely not come until 2019), the plan gained significant traction after the AT&T-Time Warner merger was approved by U.S. District Judge Richard Leon and Comcast (NASDAQ:CMCSA) abandoned its own bid for Fox, opting to focus solely on a purchase of Fox’s coveted Sky unit instead.
One of the primary promises behind the Fox merger is that Disney would add well-known superhero franchises like X-men, Deadpool and the Fantastic 4 to its already impressive library of films and television shows, and it would also gain the rights to much-beloved films like the original Star Wars movie.
But regardless of whether the DIS-FOX merger is successful, Disney is a Hollywood stock that should still be on your radar.
After all, DIS will likely become one of the leaders of the cordless viewing movement when it launches a planned exclusive streaming service in 2019. This will let Disney go head-to-head with Netflix and other popular streaming services, rather than sit on the sidelines and allow its content to be viewed on other platforms.
In a space where content is quickly becoming king, Disney’s lineup already includes proven companies like Lucasfilms and Marvel that have the rights to all-star franchises like the insanely popular Star Wars films and Black Panther. That’s not even counting Disney’s own big-time franchises. This will give DIS a clear advantage over the competition when it finally enters the ultra-competitive streaming space.
With the Fox merger, DIS also stands to have more than a 50% stake in Hulu (it already owns 30%), giving it even more access to TV shows to stream.
Clearly, the war for content is just beginning in the streaming space, but with or without Fox, Disney will forge an even greater presence in Hollywood in the years ahead, as it adapts to the new-age preferences of its audience.
Finally, another appeal to DIS stock is that it isn’t just a Hollywood stock; it also has impressive theme park revenue and other assets that set it apart from pure cinema-focused plays. There are other Hollywood stocks on this list that are more diversified than companies like Netflix, but none quite have the same presence in Hollywood as Disney.
Hollywood Stocks to Watch: AT&T (T)
Looking at things more broadly, the changes within Hollywood impact the entertainment industry in general, since the trends set in the Hollywood space often carry over into other forms of visual entertainment.
As such, AT&T (NYSE:T) deserves a spot on this list after its recent buyout of Time Warner. The merger allows for impressive synergies with AT&T’s already existing businesses, including its communications, international and advertising and analytics businesses. With the addition of Time Warner, AT&T now has a respectable media business that consists of “leading movies and shows from Warner Bros., HBO and Turner, along with more targeted digital content from Bleacher Report, FilmStruck and AT&T’s investment in Otter Media, among others.”
According to Forbes, “AT&T is the biggest wireless company but and also has DirecTV, a major platform for offering content across a satellite infrastructure” [sic]; the merger will enable innovations to Time Warner’s programming through AT&T’s already existing technologies and assets.
As such, the acquisition of HBO and Turner allows T to compete with Netflix on the pure streaming front, while its new ownership of Warner Bros. allows it to compete more aggressively with DIS in terms of pure entertainment firepower.
Although AT&T might seem like an oddball among other Hollywood stocks, the two-pronged content attack granted by HBO, Turner and Warner Bros. along with the added strength of its pre-existing communications business should forge a “trident” that could turn into much more than just a thorn in the backside of both NFLX and DIS in the years ahead.
Add to that the fact that T stock is already a dividend stalwart for reasons not directly related to cinema, and you have a solid out-of-the-box Hollywood stock to buy.
Hollywood Stocks to Watch: Amazon (AMZN)
The final pick on this list goes even further out of the box with Amazon (NASDAQ:AMZN). Of course, Amazon Prime Video is a notable contender in the streaming world, that should only become stronger as AMZN continues to add more prime members and integrates them within its FireTv and Alexa echo system.
But the focus of my “out-of-the-box” analysis here is not on its Prime Video service, even though that has the most direct connection. Instead, my analysis on AMZN as a Hollywood stock is based on the growing strength of its Twitch video game streaming platform.
In the traditional sense, Twitch has nothing to do with Hollywood other than the fact that it offers a form of visual entertainment that’s viewed through some sort of screen. However, what this form of entertainment lacks artistic merit, it makes up for in terms of its growing popularity. In fact, Twitch viewership recently grew 21%, while Alphabet’s (NASDAQ:GOOG, NASDAQ:GOOGL) YouTube has started to lag behind it.
It’s true that Twitch is tied to the esports trend in gaming, but for those that are unfamiliar with the service, the allure of this video game streaming platform is not just competitive gaming — people also watch others play story-driven games.
In that regard, I see it as an alternative to Hollywood — a new interactive and social cinematic experience that combines the story-telling strengths of video games with the DIY, anyone-can-do-it-aesthetic of YouTube.
And therein lies an interesting opportunity for investors that want to think outside of the box when looking at Hollywood stocks to consider.
Not only is AMZN directly involved with changes in the Hollywood space, but it also dabbles in another form of visual entertainment that many younger people are growing up with. Much like Hollywood and Netflix are household names, Twitch could also reach that status over the years. If there’s any questioning its popularity, just think about the fact that it has “as many viewers as CNN and MSNBC.”
When you combine its Twitch streaming service with its Amazon Prime Video service, it’s clear that AMZN is one of the key forces to pay attention to amid the changes in Hollywood. And it separates itself from the pack through its well-rounded diversification, which includes its internet retail business, Whole Foods business and several others.
Robert Waldo is an Assistant Editor for InvestorPlace. As of this writing, he did not hold a position in any of the aforementioned securities.
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