Are Sony and Fox Proof Streaming Is a Business to Avoid?

Fox shares have retained the most value of any media stock in 2022. Sony Pictures just reported strong quarterly profits: Is NOT streaming the move?
Sony and Fox coproduction "Fantasy Island"
Sony and Fox coproduction "Fantasy Island."

Streaming is not having a moment. First, SVOD (subscriber video on-demand) reached a wall, sending commercial-free streamers like Netflix and Disney scrambling to introduce ad-supported options. And now that advertising-sales revenue is going in the same direction as the economy (and in the opposite direction of inflation), those not reliant upon a traditional streaming service, like Fox and Sony Pictures, are laughing all the way to the bank.

Not that both didn’t try out the trendy direct-to-consumer delivery system. Sony dipped a toe in the streaming waters with Crackle before ultimately selling it to Chicken Soup for the Soul Entertainment. (Yes, the same weird, ambitious company that recently bought Redbox.) Fox used to own one-third of Hulu with its partners — and broadcast rivals — ABC (Disney) and NBC (NBCUniversal is owned by Comcast). Disney got that stake when it picked Fox apart to the tune of $71.3 billion in 2019, and now has controlling ownership in Hulu.

These days, Fox’s streaming portfolio consists of totally free FAST service Tubi, the fully ad-supported Fox Weather, and Fox News Channel companion platform Fox Nation, which does carry a subscription fee. These same days, Sony’s television and film division Sony Pictures is working as an arms dealer, so to speak, by creating content for other streamers, primarily Netflix.

The move seems to be working out for them: Sony Pictures’ April-to-June quarter operating profit was a strong $394 million on $2.64 billion in revenue, the company reported on Friday. Last year’s comparable operating profit in the same quarter was $232 million on $1.87 billion in revenue. At the time, Covid was a larger factor in the theatrical business.

The box office is back, but this past quarter wasn’t all roses for Sony from the bigger-picture perspective beyond the Pictures segment; Sony Group Corporation is not immune to macroeconomic factors. The Japanese company trimmed its financial guidance for 2022 citing all the same troubles as everyone else. Those recession fears aren’t being felt as much (yet, at least) at Sony Pictures; its sister gaming and network services are a whole different story. The 30,000-foot-view issues explain the Sony stock’s (SONY on the NYSE) 2.5 percent decline today.

Mark Wahlberg in Sony Pictures’ April 13, 2022 release “Father Stu.”Sony

Shares in Fox are down about twice Sony’s troubles today, though that’s got nothing to do with June-quarter earnings: Fox reports its own results on August 10.

Fox is having a pretty good 2022, comparatively speaking: As of this writing Fox stock (FOX on the NASDAQ) is down just 9 percent year-to-date. Netflix is down 62 percent; Disney is down 33 percent; Comcast is down 27 percent; Amazon is down 20 percent; Starz owner Lionsgate is down 48 percent; Warner Bros. Discovery is down 41 percent; Roku is down 73 percent; Paramount Global is down 27 percent; AMC Networks is down 17 percent, Apple is down 11 percent.

Here we should point out that Sony Group’s stock is down 33 percent this year. But again, Sony, like Amazon and Apple, is a retail business that also dabbles in film and television. None of those are traditional media stocks.

In early May, the researchers at MoffettNathanson called out Fox as their only “Buy” in the media sector. That still holds true today, Michael Nathanson told IndieWire (while pointing out that Facebook owner Meta and YouTube parent Alphabet — fka Google — are his buys in internet stocks) on Friday. In early May, Nathanson’s target price for Fox was $50 per share; today it is $46, still a sizable premium over the $30.90 Fox closed at on Friday.

A large part of the reason Nathanson is bullish on Fox is the Murdoch-run company’s relatively small streaming footprint. Forecasts show Fox having the lowest share of digital revenue in the media landscape through at least 2025 (MoffettNathanson estimated in May that 21 percent of total company revenue then will come from Tubi, Fox Nation, Credible, and other digital advertising). That may actually be a good thing. By effectively avoiding SVOD on a large scale, Fox has kept its streaming investments relatively low and also does not have to ride out those predictable first few years (at least) of losses.

So Fox is lean and mean — and the Murdochs are looking (again) like media geniuses. Instead of getting in on the expensive streaming wars, Fox has spent its money on live sports and news on linear television — the oldest-school option. In other words, the future of media may very well lie in the past.

Just kidding, streaming rules. But perhaps not financially — and we’re deadly serious about that.

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