Despite the S&P 500’s strength in the back half of the year, shares of television entertainment companies have pulled back significantly in response to several challenges.
The growing trend of cord-cutting—replacing expensive cable packages with streaming services, so-called skinny bundles and, of course, pirated digital content—has resulted in subscriber attrition at AT&T (NYSE: T) and Comcast Corp’s (NSDQ: CMCSA) pay TV businesses.
Falling subscriber numbers, in turn, pressure affiliate fees, ratings and ad revenue, creating a headwind for cable TV networks like The Walt Disney Co’s (NYSE: DIS) sports-focused ESPN franchise. Other challenges for traditional media players include the ongoing transition to digital platforms, which complicates the process of measuring viewership levels—a key metric for pricing advertising.
Media consultancy Magna Global projects that TV ad spending will increase by only 1.6 percent in 2017—the lowest growth rate since the Great Recession. A lack of marquee events after last year’s Summer Olympics and contentious election season explains this slowdown.