Lehman Brothers cut the stock ratings of Walt Disney, Time Warner, CBS, News Corp. and Viacom last week over fear that “structural changes appear destined to impact the core revenue and profits of the entertainment business.”
Lehman Brothers thinks the television and film industry could suffer the same fate as the music business. “To be clear, our fear is that the damage that digital distribution inflicted on the music industry will replicate itself in the movie industry, and our fears are too great to justify keeping neutral or positive ratings on the creators and distributors of movie and TV content,” wrote Anthony DiClemente, an entertainment industry analyst, in a research note.
Lehman lowered its overall view of the industry to “negative” from “neutral.” Shares of all five companies were down in early trading on the New York Stock Exchange.
“In reality, while there are many obvious differences between music/audio and movie/video media forms, the core properties of video distribution and consumption are not different enough from music content to continue to justify why movie/TV content will be spared fragmentation,” DiClemente wrote.
He argued that as consumers shift to new types of media — movie downloads or TV video recorders that make it possible to skip commercials — the big entertainment companies will struggle to replace traditional sources of revenue.
“We believe fragmentation of media as a result of technological change is highly likely to disrupt the economics of traditional forms of movie and TV distribution,” he said. “Content may no longer be king in the entertainment business.”