Audiences flocked to movie theaters to see the buzzworthy Barbie and Oppenheimer. But the box office’s momentum is in jeopardy as both writers and actors guilds strike. Here’s which entertainment companies will outperform, according to analysts and industry insiders. The box office is back thanks to a historic weekend from a pair of mid-summer blockbusters, but Hollywood insiders and analysts fear that the movie industry’s momentum may soon stall.
Movie theaters were packed this past weekend for the simultaneous openings of Barbie and Oppenheimer, which crushed even the most optimistic expectations with domestic debuts of $162 million and $82.4 million, respectively, according to estimates from box-office data provider Comscore.
“If you were to get in a time machine and hit the rewind button and go back just a few months, no one could have predicted this,” said Paul Dergarabedian, Comscore’s senior media analyst, in a recent interview with Insider.
Although the flicks were smash hits, some industry pundits are worried their success won’t translate to a silver screen renaissance following the lost years during the pandemic.
After plummeting during the pandemic, movie sales are slowly recovering. Wedbush Securities Both movies benefited from the so-called “Barbenheimer” trend that went viral on social media, in addition to can’t-miss marketing campaigns and fan support, said Alicia Reese, an equity research analyst covering the media and entertainment industry at Wedbush Securities, in an interview with Insider. But she’s skeptical their success will trickle down to other titles.
“Barbenheimer” was a much-needed distraction from the turmoil that has engulfed Hollywood in recent months. The town is at a standstill as writers and actors strike in hopes of securing better pay, protections from replacement by artificial intelligence, and other concessions from studios.
Four industry veterans Insider spoke with unanimously agreed that unless the strikes are resolved soon, the movie industry’s much-needed revival will fizzle out.
“The pandemic wreaked havoc on the release calendar — a prolonged strike would be equally damaging,” remarked David A. Gross, head of the movie consultancy Franchise Entertainment Research and a former studio marketing executive, via email.
Strikes put the pressure on struggling media companiesNeither side is blinking in the high-stakes stand-off between the guilds and the Alliance of Motion Picture and Television Producers, and it’s unclear which side of the picket line holds more leverage.
Many actors and writers can lean on regular residual payments from shows or movies they’ve already made, but the longer the strike goes the emptier their pockets get. And while media firms may not feel the squeeze yet as they work their way through sizable backlogs of content, they’ll suffer if strikes last for months.
Movie theaters and studios would be among the first casualties from the production side if the labor conflict drags on. Reese and colleague Michael Pachter warned fall movies could flop because actors won’t be able to generate publicity for their work, which is what helped make Barbie a hit.
“It just has to end before October because you really need the press tours around the November releases,” Reese said. “The movies before that don’t have the big names that require a press tour to the same extent that the November titles and December titles do.”
Without the crucial promotional lever of press tours with Hollywood stars, some studios are already delaying the release of fall movies, betting that a drought of films in late 2023 is preferable to a string of box-office bombs. That’s a crushing blow for theater chains that are left empty-handed in the second half of the year.
Scripted TV shows originally set to air this fall are also getting booted because of the strikes. Networks risk alienating audiences and advertisers by relying heavily on unscripted shows and reruns, which Reese aptly noted could further accelerate the shift away from linear TV.
And while streaming companies have deep content libraries and large production pipelines, they’re not completely insulated from strikes either, Gross noted. Consumers have an insatiable appetite for new shows and movies, and streamers that can’t keep new content coming may suffer from higher cancellation rates.
“The streamers can’t afford to let their subscribers down,” Gross wrote. “If Wall Street sees falling subscription numbers because of the strikes, stock prices are going to fall sharply.”
Among the industry mavens Insider spoke with, there was a consensus view that the pressure on production companies intensified once actors joined writers on the picket lines.
“All the elements are key in terms of filmmaking,” Dergarabedian said. “But if you don’t have those two, you don’t have a movie — or any content.”
If actors had a deal and writers were striking solo, Gross believes that the labor stoppage could go on longer since the impact wouldn’t be as immediate. But now that both guilds are holding out, Hollywood is at a standstill, and the consequences could be devastating for all.
“Imagine, if you will, if the Barbie and Oppenheimer talent had not been able to go out and talk about these movies,” Dergarabedian said. “I don’t know that we’d be talking “Barbenheimer” right now in that case.”
Dergarabedian continued: “This weekend may be the best thing to happen for the strikes.”
All entertainment stocks carry risks, but these 5 will hold up during the strikesHollywood’s first dual strike since 1960 is a no-win situation for all involved, Dergarabedian and Gross insisted. But some media companies are bound to hold up better than others.
In a mid-July note about the movie industry, Reese and Pachter highlighted three theater-related companies that are best positioned to survive in this difficult environment.
Reese and Pachter named IMAX (IMAX) as their top idea for playing the movie industry’s rebound, even before the impressive “Barbenheimer” debut weekend. The firm reported strong results of its own this week, and shares rose 11% after its earnings report.
The theater chain is gobbling up market share as movie-goers increasingly prioritize premium in-theater experiences. Another tailwind for IMAX is its international presence, as it continues to increase its number of local-language titles and is benefit from China’s ongoing economic recovery. And while movie delays are a risk if actors are barred from promotion, the company isn’t fretting.
“We believe studios will be reluctant to move films on a slate and potentially sacrifice an already agreed-to IMAX window,” said Richard Gelfond, the CEO of IMAX, on the company’s Q2 earnings call on July 26. He later added that the first half of 2024 shouldn’t be affected either.
The Wedbush analysts believe Cinemark (CNK) also has upside as company’s disciplined executives continue to pay down debt and consolidate in the Latin American market. But some media analysts have soured on the theater chain, with JPMorgan’s David Karnovsky recently downgrading Cinemark shares to neutral, citing movie delays from the strikes as a headwind — even if the box office outperforms.
Shares of National CineMedia (NCMI), which displays ads on silver screens, are trading for just pennies but could revive if the company survives this advertising recession, Reese and Pachter wrote. This firm was hard hit when theaters closed during the pandemic, and many never reopened their doors. There isn’t much good news priced into the stock now, but it could be a value play for investors with the stomach for it.
The analysts gave each of the stocks above an outperform rating, as well as price targets that imply their shares have between 23% and 47% upside ahead.
In addition, streaming companies like pay TV-replacement FuboTV (FUBO) and industry leader Netflix (NFLX) are well-positioned right now, Wedbush’s Pachter told Insider.
FuboTV should be a winner since it’s a solid alternative for cord cutters who still need news and sports coverage, which aren’t impacted by the strikes, Pachter noted. The Wedbush analyst’s $5 price target for FuboTV is the highest on the Street.
Netflix is perhaps the most fascinating company in the media industry right now. Its first-mover advantage gives it an enviable content library and an unmatched international presence that can help it produce new shows while US actors and writers aren’t working, which makes it well-suited for a strike.
“Whoever has the greatest backlog of content in the vault that’s ready to go is good,” Dergarabedian said. But he later added: “Everyone, I think, is well positioned in the short term, but these strikes have long-term implications. That whole situation is just going to every day become more dire and more profound for the industry.”
Regardless of how the labor conflict unfolds, the streaming pioneer is in a win-win position, in Pachter’s view. Conventional wisdom in Hollywood is that Netflix should hold out since its content slate is deepest, but Pachter disagrees. As the only profitable streamer, Netflix can afford to give writers and actors what they want while getting on the good side of creatives.
“Netflix is the least impacted and — I would think — should be the most motivated to settle,” Pachter said. “Because anything that they pay in higher actor and writer wages, their competitors are going to spend three or four or five times as much. So if they settle for something that really hurts their competition, it’s really good for them.”
But Gross warned that no media company can stop making new content indefinitely, not even Netflix. The original streamer’s strong position may mean it can hold out for about a month longer than its peers, he estimated, but it risks losing the subscribers it recently added if its firehose of content slows to a trickle.