After Brexit, Wall Street Wonders: How Will Media Companies Respond?


Media leaders, and the people who follow them, pride themselves on being in the know. That’s what made Britain’s vote yesterday to leave the European Union so sobering. Few saw it coming; just yesterday the betting market Betfair put the odds that the country would elect to stay in the EU at 88%.

Meric Greenbaum
Associated Press

That’s why so many investors have more questions than answers today about the impact that the vote will have on media and entertainment businesses.

After checking in with some of the smartest minds in the business, here are a few of the things on their minds today:

Will anyone lower financial guidance, and blame Brexit? You know how this works: Execs take credit for good news and blame forces beyond their control for bad. It’s like pointing to the weather when a movie disappoints at the box office.

The Brexit vote, coming a week before the end of Q2, provides a perfect scapegoat for those who already were having second thoughts about optimistic forecasts they gave Wall Street early this year about their 2016 performance.

Will studios see widening disparities between TV and movie results? Most studios write overseas licensing deals for TV shows in dollars, which helps to immunize them if currencies weaken in the UK, France or other European markets.

But global buyers of movie tickets, licensed merchandise, DVDs and pay per view use their local currencies, making studios vulnerable if disparities grow. It’s serious because the hit goes right to the bottom line.

And Brexit hurts: The value of the British pound fell more than 10% today to $1.32, its lowest price since 1985.

This isn’t just a Brexit issue, though. For example, the Chinese yuan has taken a hit lately and closed today at its lowest level since 2011.

Will consumers reduce their spending on media and entertainment? People who are worried about the economy often make things worse — at least in the broader sense — by cutting back on discretionary spending. That could mean fewer trips to the movies, cutting back on pay TV channels or postponing that trip to Disneyland Paris.

Will investors cut their earnings multiples for media stocks? Wall Street uses several formulas to determine how much companies are worth. But just as home buyers compare properties by looking at the price per square foot,  stocks often end up being priced on a multiple of per-share earnings.

Buyers don’t control the earnings part of that equation. But if they fear that media companies are becoming riskier, then they could price them at lower multiples. The industry already is considered riskier than the overall market, which means media companies could feel a big pinch if investors retreat from stocks generally.

Will Rupert Murdoch have second thoughts about supporting Brexit? The mogul favored leaving the EU, though his newspapers were split: The Times mildly favored remaining, while Murdoch’s tabloid, The Sun, vigorously called a vote to leave a “chance to make Britain even greater, to recapture our democracy, to preserve the values and culture we are rightly proud of.”

He got what he wanted — sort of. The stock price at his two companies took a big hit today, with 21st Century Fox down 7.7% and News Corp. off 6.2%.

Will the shock lead media companies to reassess their strategies? Leaders will have to do some soul searching as they grapple with the broad implications of Thursday’s vote.

The UK press failed to recognize the public disaffection with the status quo that propelled support for Brexit — much the way their U.S. counterparts underestimated support for Donald Trump. Was this the result of budget and staff cuts that turned institutions inward, unable to sense the frustration of non-elites in the heartland?

And if people are reasserting their passion to maintain distinct national identities, then Hollywood studios might have to reassess their strategies.

There’s nothing they can do to slow the global flow of capital, and spreading digital technologies, that make the world so interconnected and interdependent. But they might have to rethink what kinds of stories will appeal to audiences who yearn to have someone acknowledge their interests and pain.

“In a world of sound bites, entertainment is the only thing that humanizes the world for peace,” Entertainment Media Ventures President Sandy Climan tells me. “We need more storytellers telling stories about local cultures, about families and communities, shared joys and pains, and that there is optimism that we can make the world a better place.”

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