Media and entertainment stocks led by Netflix were among the big losers on Thursday as economic data and the Fed’s latest move have sent investors panicking about an impending recession. Notably, Netflix — which is discounted by nearly 10% — faced a report that its ad-supported tier is having a rough debut.
The DJIA is currently down 910 points or 2.68%. The Nasdaq is off by 3.4% and the S&P 500 by 2.8%.
Digiday reported that Netflix is not meeting the viewership guarantees it has given advertisers and allowing them to take their money back for ads that have yet to run. Netflix doesn’t use traditional make-goods, which shift ad money to future promos, it says, but in some cases requires marketers to pay only for viewers they actually reach.
In a response to Deadline, a Netflix spokesperson said: “While it is still very early days for our ad-supported tier, we are pleased with the successful launch and member engagement in the Basic with Ads plan, as well as the eagerness of advertisers .to work together from the start.”
Analysts mostly agree. “It’s no surprise,” Macquarie Research’s Tim Nollen said in a note today, “given how little Netflix has promoted the tier and thus converted subscriptions.”
Netflix launched its advertising layer in early November. Disney+ with ads debuted last week, even as media executives began to warn of a sluggish ad climate. That’s largely the result of six consecutive rate hikes by the US Federal Reserve since March, the latest a hefty 0.5% hike announced yesterday, coupled with high inflation.
The Fed is using rate hikes to slow the economy and contain inflation, which reached a 40-year high in 2022 as consumer spending, supply chain disruptions and other factors drove up demand and prices.
Yesterday’s data showed that inflation was slightly more subdued for November. But the Fed raised interest rates again, as expected, and Chairman Jerome Powell said at a news conference that he will continue to do so until inflation is tamed. The Consumer Price Index rose by just over 6% in November. The Fed’s target is 2%. (The central banks of Europe and the UK also raised interest rates today.)
Consumers and businesses will therefore face both high prices and high interest rates in the near future, potentially leading to a recession. That keeps advertisers, who like economic clarity, on the sidelines.
Recession jitters took hold today as the Department of Commerce reported that US consumers cut spending sharply in November, with retail sales falling 0.6% from October after rising 1.3% the previous month.
Among other major media names, Warner Bros. Discovery is down nearly 8% to $10.14. Write-offs and charges by media giant continue to mount after the merger. Yesterday it said it expects up to $3.5 billion in content reduction costs and development write-offs, up $1 billion from a ceiling it predicted last month.
Disney is currently the worst performer in core DJIA with 30 members, down nearly 4% to $90.35.
Shares of Paramount Global are down 7%. Roku is down 6.5%. There’s almost no green on the card today, with tech also taking it on the chin and Snap, Spotify, Google parent Alphabet, Facebook parent Meta all down.