Ongoing strikes could halt Hollywood’s momentum after the ‘Barbenheimer’ bump, but 4 industry insiders and analysts are still optimistic about the future of these 5 entertainment companies

  • 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 are concerned that the industry’s momentum will soon come to a halt.

This past weekend, movie theaters were packed for the simultaneous openings of Barbie and Oppenheimer, which exceeded even the most optimistic expectations with domestic debuts of $162 million and $82.4 million, respectively, according to 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 films were box office smashes, some industry insiders are concerned that their success will not translate into a silver screen renaissance following the pandemic’s lost years.

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” provided a welcome diversion from the turmoil that has engulfed Hollywood in recent months. The town has come to a halt as writers and actors go on strike in the hopes of securing better pay, protection from artificial intelligence replacement, and other concessions from studios.

Four industry veterans Insider spoke with unanimously agreed that unless the strikes are resolved soon, the much-needed revival of the film industry will fizzle.

“The pandemic wreaked havoc on the release calendar — a prolonged strike would be equally damaging,” said David A. Gross, head of the film consultancy Franchise Entertainment Research and a former studio marketing executive, in an email.

Strikes put the pressure on struggling media companies

In the high-stakes standoff between the guilds and the Alliance of Motion Picture and Television Producers, neither side is blinking, and it’s unclear which side of the picket line has more clout.

Many actors and writers can rely on regular residual payments from previous shows or films, but the longer the strike lasts, the thinner their pockets become. While media companies may not feel the pinch right now as they work through large backlogs of content, they will suffer if strikes last for months.

If the labor conflict continues, movie theaters and studios will be among the first casualties on the production side. Fall movies, according to Reese and colleague Michael Pachter, could flop because actors won’t be able to generate publicity for their work, which helped Barbie become a hit.

“It just has to end before October because you really need the press tours around the November releases,” said Reese. “The films preceding that do not have the big names that necessitate a press tour to the same extent that the November and December titles do.”

Without the critical promotional tool of press tours with Hollywood stars, some studios are already postponing the release of fall films, betting that a film drought in late 2023 is preferable to a string of box-office bombs. This is a crushing blow for theater chains, who will be left with nothing in the second half of the year.

Because of the strikes, scripted TV shows that were scheduled to air this fall are also being canceled. By relying heavily on unscripted shows and reruns, networks risk alienating audiences and advertisers, which Reese correctly noted could hasten the shift away from linear TV.

While streaming companies have large content libraries and production pipelines, they are not immune to strikes, according to Gross. Consumers have an insatiable appetite for new shows and movies, and streamers that can’t keep producing new content may face higher cancellation rates.

“The streamers can’t afford to let their subscribers down,” Gross wrote. “Stock prices will fall sharply if Wall Street sees falling subscription numbers as a result of the strikes.”

Insider spoke with industry insiders who agreed that the pressure on production companies increased once actors joined writers on the picket lines.

“All of the elements are important in filmmaking,” Dergarabedian said. “But if you don’t have those two, you don’t have a movie — or any content.”

Gross believes that if actors had a contract and writers struck alone, the labor stoppage could last longer because the impact would be less immediate. But, with both guilds refusing to back down, Hollywood has come to a halt, with potentially disastrous consequences 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’m not sure we’d be discussing “Barbenheimer” right now in that case.”

“This weekend may be the best thing that has happened for the strikes,” Dergarabedian continued.

All entertainment stocks carry risks, but these 5 will hold up during the strikes

Dergarabedian and Gross insisted that Hollywood’s first dual strike since 1960 is a no-win situation for all parties involved. However, some media companies will undoubtedly fare better than others.

Reese and Pachter highlighted three theater-related companies that are best positioned to survive in this difficult environment in a mid-July note about the film industry.

Even before the impressive “Barbenheimer” debut weekend, Reese and Pachter named IMAX (IMAX) as their top idea for playing the film industry’s rebound. This week, the company reported strong earnings, and shares rose 11% as a result.

The theater chain is gaining market share as moviegoers prioritize premium in-theater experiences. Another source of growth for IMAX is its international presence, which is benefiting from China’s ongoing economic recovery. While movie delays are a risk if actors are barred from promotion, the studio is unconcerned.

“We believe studios will be hesitant to move films on a slate and potentially sacrifice an already agreed-upon IMAX window,” said Richard Gelfond, CEO of IMAX, on the company’s Q2 earnings call on July 26. He later added that the first half of 2024 should be unaffected as well.

Wedbush analysts believe Cinemark (CNK) has potential as well, as the company’s disciplined executives continue to pay down debt and consolidate in the Latin American market. However, some media analysts have soured on the theater chain, with JPMorgan’s David Karnovsky recently downgrading Cinemark shares to neutral, citing movie delays as a headwind — even if the box office outperforms.

Shares of National CineMedia (NCMI), which displays advertisements on movie screens, are trading for pennies but could rebound if the company survives the advertising downturn, according to Reese and Pachter. When theaters closed during the pandemic, many of them never reopened. There isn’t much good news priced into the stock right now, but it could be a value play for investors with the stomach for it.

Each of the stocks above received an outperform rating from the analysts, as well as price targets implying that their shares have between 23% and 47% upside potential.

Furthermore, streaming companies like pay TV replacement FuboTV (FUBO) and industry leader Netflix (NFLX) are well-positioned right now, according to Wedbush analyst Pachter.

FuboTV should be a winner because it’s a good alternative for cord cutters who still need news and sports coverage, which aren’t affected by the strikes, according to Pachter. The Wedbush analyst’s $5 price target for FuboTV is the highest on the Street.

Netflix is currently the most fascinating company in the media industry. Its first-mover advantage gives it an enviable content library and an unrivaled international presence, which can help it produce new shows while US actors and writers are on strike, making it well-suited for a strike.

“Whoever has the greatest backlog of ready-to-go content in the vault is good,” Dergarabedian said. However, he later added, “Everyone, I believe, is well positioned in the short term, but these strikes have long-term implications.” That whole situation is only going to get worse and worse for the industry.”

Regardless of how the labor dispute plays out, Pachter believes the streaming pioneer is in a win-win situation. The conventional wisdom in Hollywood is that Netflix should hold out because its content slate is the most diverse, but Pachter disagrees. As the only profitable streaming service, Netflix can afford to give writers and actors what they want while remaining on the good side of creatives.

“Netflix is the least affected and should be the most motivated to settle,” Pachter said. “Because anything they pay in higher actor and writer wages, their competitors will spend three, four, or five times as much.” So if they settle for something that really hurts their competition, it’s really good for them.”

However, Gross cautioned that no media company, including Netflix, can stop producing new content indefinitely. He estimates that the original streamer’s strong position will allow it to hold out for about a month longer than its competitors, but it risks losing the subscribers it recently added if its firehose of content slows to a trickle.

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