From advertising woes and licensing declines to movie theater uncertainty and a shakeup in streaming, there are more than a few ways the uncertain moment could reshape the business.
Wide-ranging tariffs are set to go into effect, global stock markets are plunging, and many economists are growing concerned about a serious recession.
The world is going through a period of economic uncertainty the likes of which haven’t been seen for decades. And Hollywood is not going to be spared.
“Tariffs are the cliffhanger Hollywood feared, forcing both studios and consumers to tighten their belts,” says Scott Purdy, U.S. media industry leader at KPMG U.S. “Ad spend will take a hit while media companies downshift on content spend, potentially stifling industry growth. Streamflation might resurface as entertainment budgets shrink—fewer subscriptions, movie nights, amusement park visits and live events. The industry is buffering, waiting for the loading screen to clear.”
Indeed, while the entertainment business doesn’t run on imported goods in the same way a company like Nike or Toyota does, the tariff implications, recession fears and overall market turmoil will result in second and third order effects that will be felt far and wide.
Here’s how the entertainment business could be impacted:
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Advertising Uncertainty
Image Credit: Photo by Roy Rochlin/Getty Images for Climate Power Every entertainment company is in the advertising business now, from YouTube and Netflix to Disney and Warner Bros. Discovery. And in a recession, advertising budgets are among the first things to be cut. As The Hollywood Reporter previously noted, the timing of the turmoil couldn’t be worse for the business, as the networks and streamers are set to begin their upfront talks with advertisers in the coming weeks.
Consumer packaged goods companies and retailers will all be directly impacted by the tariffs and will likely be reevaluating their spend, while tech companies will be challenged with their own imports (like Apple’s products) or ecommerce plays (which power Amazon and Meta, among others). The travel sector is also likely to be impacted.
With tremendous uncertainty, the ad market will feel the pain, though how much, how long, and how widespread are to be determined.
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Streaming Boom or BustThe streaming business, to be certain, would be seriously hampered in an advertising downturn. But the business could also benefit in a recessionary environment. In a world where spending tightens, streaming services like Netflix and Disney+ can make for compelling values, providing endless entertainment at a reasonable set price. In other words, streaming subscriptions could benefit in this environment, much as they did in the early days of the COVID pandemic (albeit without everyone stuck inside their homes all day).
But there is an associated risk: Streaming services are easy to sign up for, but just as easy to cancel. And in a world where customer churn is already high, a recession could supercharge that churn, making it harder to retain subscribers, who could come and go month to move as they seek fresh fare.
Free streaming options could flourish, despite a gloomy ad outlook, as more and more people flock to them in a search for value, and perhaps stick around. YouTube would be an obvious beneficiary, of course, but Fox’s Tubi, Paramount’s Pluto and other FAST channels will also likely see a viewership bump.
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Production Problems
Image Credit: Apple TV+ With entertainment companies tightening their belts, programming budgets will likely fall. And because every company is investing more in live sports, those cuts will come at the expense of entertainment programming.
Why? The Costs for live sports are mostly fixed.
NBC, for example, will pay the NBA about $2.45 billion per year for the next 11 years for the rights to its games, and will need to spend hundreds of millions more per year to produce the games and shoulder studio programming. There is no room for that budget to go down meaningfully.
When you look at all the sports rights deals that the large TV networks and streamers are committed to, between the NBA and NFL and everything in between, the ability to shift budgets around falls on the entertainment side of the portfolio. Expect fewer scripted projects as the streamers and networks focus on safer bets, and perhaps more reliance on unscripted shows to wring more hours of programming out of the same budget bucket.
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Experiential Ennui
Image Credit: Photo by Lyvans Boolaky/Getty Images The post-pandemic landscape brought with it a tidal wave of pent-up demand for live events and experiences. Concerts (looking at you Taylor Swift), sporting events, theme parks (hi, Disney) and other experiential businesses have boomed, delivering record-breaking revenues for companies like Live Nation, and causing an influx of investment into the space.
It should go without saying that in a recession, expensive concert tickets and vacations are among the first thing households cut out of their budgets. There will always be premium tickets for events, but in a changed market the perhaps irrationally exuberant prices for normal tickets can’t stand. Similarly, expensive theme park trips to the likes of Disney World and Universal Studios will be tempered, as deals and offers permeate.
And as Disney CEO Bob Iger noted in an ABC News editorial meeting April 3, Disney requires steel and other raw materials to build its new fleet of cruise ships, not to mention its new theme park worlds and attractions.
The Licensing Cash Runs Dry
