The digital Godzilla that splatted the music industry is headed full speed for the movie and TV business.
So says a top Lehman Brothers analyst, whose downgrade of the entertainment sector from “neutral” to “negtive” roiled major Hollywood stocks early this week — even though all of this gloom has long been factored in to media stock prices.
“Owning a collection of movies in this new digital world is really just not that cool for young adults in the target demographic that we look to for the future of the business,” Anthony DiClemente proclaimed during a conference call.
Then he let loose the dreaded words: “Content may no longer be king in the entertainment business.”
DiClemente trotted out the usual suspects: digital distribution via outlets like the iTunes Store and Amazon’s Unbox, illegal movie downloads, ad-killing DVRs, the overall downtrend in the aging DVD format.
He downgraded 20th Century Fox, News Corp., Time Warner, CBS and the Walt Disney Corp., media giants he said were particularly vulnerable to digital disruptions. Paramount took less of a hit.
News Corp., for example, saw the target price for its stock fall from $25 to $15 a share in Lehman’s eyes. Time Warner’s slid from $20 to $14.
“The structural shift created by ubiquitous technological change — a shift that has materially impacted the music industry — could also disrupt the core economic models of the film and television studios,” DiClemente said.
Most of the stocks DiClemente cited failed to participate in Tuesday’s broad stock rally, but their losses from Monday’s bashing seem over.The Lehman report saw a lot of press because of its doom-and-gloom headlines, but anyone with an active interest in this topic knows there’s nothing new there. Almost all of the analysts rounded up for comment blew off DiClemente’s report.
DiClemente, of course, had to justify his sector downgrade, so don’t blame him for stating the obvious.
He did make a point we don’t hear often enough. The era of owning an artifact — an album, CD or DVD — in order to enjoy entertainment is coming to a close. The forward-looking musician Todd Rundgren was making this point 15 years ago, but no one was listening.
Most of us have heard of kids who buy CDs, download the music, and then throw away the disc before someone cool sees them with the dumb thing.
The Hollywood stock slide in my opinion doesn’t present a buying opportunity (outside of overall market cheapness). I don’t own media stocks (aside from some GE stock I’m looking to dump) — and that’s from someone who’s worked in media most of his life.