The dramatic tariffs announced by President Trump on Wednesday would not directly impose high costs on most media and entertainment companies. However, analysts say the knock-on effect, that is, the obvious reduction in U.S. consumer spending and advertising budget cuts to Hollywood’s profits.
Fear of the new Trump tariffs causing a recession was reflected in the widespread stock market sale on Thursday.
Trump’s “mutual” tariffs “do not cause much direct harm” to media and entertainment companies, Morningstar senior equity analyst Matthew Dulgin wrote in an April 3rd research note. With the exception of things like Apple and Roku where hardware makes up a significant portion of revenue, most companies in this sector “don’t rely too much on selling products, and don’t rely on at all. However, most are directly dependent on consumer spending, so economic weakness caused by tariffs can hinder your business.”
Companies hit by higher tariffs will not absorb these costs. This means that consumer prices are high. And among consumers, “one of the first places they spend less is media and entertainment,” says CJ Banagh, Principal of Communications, Media and Technology Practice at PWC.
Banag said the downturn in the recession also led to a decline in advertising spending, with the ads “fueling most of the media and entertainment industry.” It could mean “one-two punch” for Hollywood players, where consumers and advertising spending are declining, she said. In this environment, “the orders are simple,” Banag said. Her advice: “Never dial back the quality of content and the consumer experience,” while also being “very thoughtful” about the area where it can be maneuvered and operated more efficiently.
“What we’ve seen, or what we’ve seen from research, is that companies that don’t cut marketing in a recession are far better than they do,” Bana said.
There may be other ripple effects. As European countries tackle the economic impact of tariffs and the impact of the US’s new approach to international conflict, “The sentiment surrounding American film and media can change among European citizens,” said Maggie Swaitok, economist and senior research director at the Milken Institute, a non-party-than think tank. “It’s too early to tell you what the long-term impact of these emotional changes are, but it’s important to track public opinion data to better understand what may be stocked for the future of Hollywood.”
Even before Trump’s “liberation day” tariff announcement, US consumer trust was already on the skid. The conference committee’s consumer confidence index fell 7.2 points in March, marking its fourth consecutive month of decline. Trump’s tariff announcement “injected another round into a market that is likely to be reflected in consumer sentiment,” Sweck said.
Some of the biggest US media and entertainment stocks that fell as much (or even more) as the broader market were Disney (down 9.3% on Thursday day), Warner Bros Discovery (-13.3%), Live Nation Entertainment (-6.4%), and roku (-15.6%). This was a 4.84% decrease that day, and Nasdaq fell 5.97% amid a marked decline in indexes like the S&P 500.
Disney theme parks and experiences generate a large portion of their profits, and “the recession is likely to reduce tourism and reduce attendance at Disney parks,” wrote Morningstar Dolgin. Furthermore, “Disney has a low risk of international tourism from Canada, especially from international tourism to the United States due to the chilling of diplomacy.” He said Live Nation has similar exposure because “concert attendance is a luxury that allows consumers to pull back when needed. But while Disney will see business cool in the recession, its “improvement in the streaming business makes up for possibilities.” [theme parks] I feel relieved,” added Dulgin.
Regarding the decline in WBD’s stock, Dolgin believes it is largely attributable to its debt burden.
Among M&E stocks, Roku relies on international manufacturing from China, Southeast Asia, Mexico and Brazil. But its device business is a loss leader. All of that profit comes from advertising sales and revenue sharing contracts. This “will not be directly affected by the effects of tariffs,” according to Dolgin. That said, if advertising spending drops, Roku’s business will be injured. “Stocks aren’t attractive.”
Home appliance companies will be directly affected by the tariffs of Trump’s punishment on China and other Asian countries. The Consumer Technology Association, a trade group representing companies that support more than 18 million American jobs, has issued a ferocious responsibilities for Trump’s plans.
“President Trump’s global and mutual tariffs are a massive tax hike on Americans who can drive inflation, kill jobs on Main Street and cause a recession in the US,” CTA CEO and vice-chairman Gary Shapiro said in a statement. “These tariffs raise consumer prices and force trading partners to retaliate. Americans become poor because of these tariffs.”
Shapiro continues, “This is not a golden age, but it is a return to the global economic catastrophe of Smoot Holy’s tariffs in the 1930s, disproportionately hurting low-income and hardworking Americans. There’s no mistake.
