THE MEDIA BUSINESS

IN A BEAR MARKET
How the global economic downturn is impacting
every facet of the content industries

P.1 PRESENTED BY
S P E C I A L R E P O R T | F i r s t E d i t i o n , Au g u s t 2022
WILL MOVIE THEATERS BE EMPTY? WILL CORD-CUTTING
G
ACCELERATE? WHICH STREAMING SERVICES SHOULD D
WORRY? SHOULD CONTENT SPENDING DECLINE? DOES S
THE VIDEO GAME INDUSTRY HAVE SOMETHING TO O
FEAR? WHO WILL GO TO THEME PARKS? COULD SPORTSS
GAMBLING COOL OFF? IS THIS THE END FOR NFTS?

T
here are few corners of the global enter-
tainment business that aren’t sweating
right now, as inflation shows no signs of
flagging, among other worrisome indicators
of economic health. At the time this report is being
published, the inevitability of a recession is being hotly
debated. That said, it’s somewhat besides the point:
Recession or not, the economy is in bad shape, and
that’s not going to change anytime soon.
But here in Hollywood, some may not be as con-
cerned as they are in other industries because the
conventional wisdom has it that entertainment is a
resilient product during tough times. But today’s media
business has changed so profoundly in recent years
that making assumptions about what will happen this
time around based on previous instances seems highly
questionable. With that skepticism in mind, in this
report VIP+ decided to explore how every facet of the
entertainment ecosystem will be affected by macro-
economic pressures, including a survey in partnership
with Morning Consult that delves into how spending
habits are already changing in the U.S. Don’t forget
that a recessionary environment can’t be explored in
a vacuum; the period in which we find ourselves right
now is essentially a downturn on top of another recent
downturn — the one prompted by the pandemic.
Then there’s the fact that the entertainment world
is going through its own particular set of business
challenges, from the rise of streaming to the fever
over M&A. There are a lot of layers to this onion, and
this report peels back each one to get a sense of the
complex web of factors at play.
Andrew Wallenstein
President and Chief Media Analyst, VIP+

P.2 PRESENTED BY
IN THIS REPORT

Page Page Page Page Page

Survey Stats 4 Box Office 9 Web3 14 Sports Gambling 19 Content Spend 24

Streaming Services 5 Broadway 10 Consumer Electronics 15 Creator Economy 20 M&A 25
Streaming Churn 6 Theme Parks 11 Big Tech 16 Broadband 21 Layoffs 26
Subscriptions 7 Consumer Products 12 Apps 17 Cord-Cutting 22 Economic Pulse 27
Concerts 8 Video Games 13 Digital Publishing 18 Advertising 23 Key Indicators 28

P.3 PRESENTED BY
KEY TAKEAWAYS
S U R V E Y S TAT S
» Economic anxiety is affecting
consumer spending on enter-
tainment, according to an Discretionary Spending Reductions in a Recession Adjusting Out-of-Home Entertainment Spend
exclusive survey conducted Survey Q: Which categories would you
by VIP+ and decision intel- pull back on in the event of a recession?
ligence company Morning No
Consult. Among the 2,200 Eating out at restaurants 67%
Yes
U.S. adults surveyed, 38%
Travel 55%
said they have already begun 18-34 35-44 45-64
making changes to spending Recreation & entertainment 55%
on activities, such as attend-
ing concerts and movies. Shopping 54%
I would not reduce my spending
10%
in a recession
» Inflation could mean less
dollars for entertainment SOURCE: MORNING CONSULT; NOTE: 2,200 U.S.
65+ ADULTS SURVEYED JULY 5-6, 2022, ONLY IF
subscriptions to Netflix,
SOURCE: MORNING CONSULT THEY’VE CHANGED THEIR OUTLAY ON CONCERTS
Hulu, Spotify and others. NOTE: SURVEY CONDUCTED AMONG 2,200 U.S. ADULTS JULY 5-6, 2022 AND MOVIEGOING DUE TO THE ECONOMY
The survey found that 26%
of adults say they have
already made changes to
their monthly entertainment Cutting Back on Entertainment Subscriptions Cutting Back on Entertainment Activities
subscriptions as a result
of rising inflation.
Baby Boomers Baby Boomers
(16%) (28%)
» Even though there’s no Gen Z (36%) Gen Z (49%)
guarantee that a recession
will become a reality, just the
concern that there could be Gen X (29%)
one has consumers minding
Gen X (41%)
their wallets. Some 29%
of respondents who say
they are concerned about
Millennials (35%) Millennials (45%)
a possible recession have
adjusted their spending on
entertainment subscriptions, SOURCE: MORNING CONSULT; NOTE: SURVEY CONDUCTED AMONG SOURCE: MORNING CONSULT
2,200 U.S. ADULTS JUL. 5-6, 2022. “ENTERTAINMENT SUBSCRIPTIONS” INCLUDE NOTE: SURVEY CONDUCTED AMONG 2,200 U.S. ADULTS JUL. 5-6, 2022
compared with just 11% who VIDEO AND AUDIO SERVICES SUCH AS NETFLIX, HULU AND SPOTIFY “ENTERTAINMENT ACTIVITIES” INCLUDE ATTENDING CONCERTS
say they are not concerned. OR GOING TO THE MOVIES

P.4 PRESENTED BY
STREAMING SERVICES KEY TAKEAWAYS

» As rising costs and tighter

budgets force consum-
Number of Paid Streaming Average Number of TV Sources Per Viewer ers to spend more time at
Services Among Subscribers 2018 3 home, they’ll turn to TV for
entertainment more often.
2019 3.7
6+ (7%) 1 (18%) However, those same finan-
2020 4.8
5 (10%) cial factors could also cause
2021 5.7 streaming subscriptions to
2022 7.4 decline. Households with
4 (18%)
multiple SVOD services will
2 (24%)
SOURCE: HUB ENTERTAINMENT RESEARCH likely cut subscriptions to
INCLUDES MVPD, VMVPD, SVOD, DTC, AVOD, FAST, OTA AND TRANSACTIONAL
reduce expenses.
3 (23%
( %)

» Still, a recession is also likely

Share of U.S. Households Streaming Services Accessed to accelerate cord-cutting
Accesses streaming Per Household among pay TV subscribers.
Streaming plus pay TV Quarterly U.S. average The vast majority of con-
Streaming without pay TV 5 sumers surveyed by Nielsen
Monthly Spend on spend less than $50 per
No streaming
Streaming Services 4.5 month on streaming services,
$50 or more I use but don’t 100% far less than the average
4
(15%) personally monthly cable bill. As more
subscribe (2%)
3.5 households cut the cord, the
<$4.99 (3%) 80 80%
$30-$49.99
number of VOD services they
3 use could actually increase.
(17%)
<$10-$14.99
(16%) 60 2.5
$20-$29.99
» While SVOD subscriptions
(21%) 2 may drop, a recession could
$5-$9.99 42% present an opportunity for
40
(11%))
(11% 38% 1.5
AVOD and FAST services,
1
which offer ad-supported
20 20% content for a lower price or
0.5 free. Look for FAST’s recent
upward trajectory to accel-
0 0
erate in a recession. This will
2021 Q1 2022 Q1 Q1 '20 Q3 '20 Q1 '21 Q3 '21 Q1 '22
SOURCE: NIELSEN STREAMING MEDIA CONSUMER
speed up the path to parity
SURVEYS; NOTE: DATA AS OF Q1 2022 SOURCE: MOFFETTNATHANSON SOURCE: KANTAR between both audience sizes.

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 STREAMING CHURN
KEY TAKEAWAYS

» Retaining subscribers is Streaming Subscriptions Canceled in Past Year U.S. SVOD Subscriber Growth
already a major challenge 2021 2022 Gross additions Net additions Cancels
for streamers battling for 0% 20% 40% 60% 80%
limited dollars in a crowded None 60M
market, and a recession will
Apple TV+
exacerbate this problem.
10.9M 12.9M 7.7M
Services will need to strike Paramount+ 40M 14M
the right balance of cost and Netflix 9.3M 8.4M
content to hold onto users as Peacock 20M 6.5M 6.3M 4.3M
37.5M 36.7M 37.4M
32.2M
consumer spending slows. 25.9M 26M
Disney+ 18.6M 18.9M 20.1M
Forthcoming ad-supported
Hulu
tiers from Disney+ and Netflix −12.1M −12.6M −15.9M −16.6M
HBO Max −18.2M −17.6M
may be key to this. −26.6M −23.8M −29.8M
Amazon −20M Q1 ’20 Q2 ’20 Q3 ’20 Q4 ’20
Q1 ’21 Q2 ’21
» Streaming users are growing Discovery+ Q3 ’21
Q4 ’21
Q1’22
more price sensitive, and Other
subscription costs will SOURCE: ANTENNA
INCLUDES APPLE TV+, DISCOVERY+, DISNEY+, HBO MAX, HULU (SVOD ONLY),
become more important with SOURCE: WHIP MEDIA
NETFLIX, PARAMOUNT+, PEACOCK, SHOWTIME, STARZ
NOTE: DATA FIELDED APR 29-MAY 4, 2022 (N=2,460)
economic conditions wors-
ening. Netflix’s January price
hike led to a sustained spike
in churn, and consumers have
Why Users Report Canceling Streaming Services Active Monthly SVOD Churn Rate
frequently cited cost-related Netflix HBO Max Disney+ Disney+ HBO Max Netflix
reasons for canceling ser- They increased the
subscription price
69% Weighted industry average
vices in recent surveys.
I was not getting enough value 55% 48% 45% 8%

» Content remains a key factor, Library programming didn’t 6

29% 13% 26%
however — especially in interest me
4
Original programming didn’t
attracting new subscribers. 28% 9% 19%
interest me 2
In a recession, we can expect I saw the programming that
22% 43% 44% 0
to see increased “churn and interested me
Jul Oct Jan Apr
return,” with users canceling The user experience was
7% 12% 5% 2021 2022
and resubscribing to services unpleasant
SOURCE: ANTENNA
month to month based on SOURCE: WHIP MEDIA; NOTE: DATA FIELDED APR 29-MAY 4, 2022; BASE: NETFLIX NOTE: AVERAGE INCLUDES APPLE TV+, DISCOVERY+, DISNEY+, HBO MAX, HULU
content they want to watch. (N=233), HBO MAX (N=139), DISNEY+ (N=143) (SVOD ONLY), NETFLIX, PARAMOUNT+, PEACOCK, SHOWTIME, STARZ

P.6 PRESENTED BY
SUBSCRIPTIONS KEY TAKEAWAYS

» Music streaming services will

likely prove more inelastic
Media Subscription Plans in Next Year U.S. Magazine Subscriptions than streaming video plat-
Survey Q: In the next year, will the number of online media subs Digital subscriptions Print subscriptions forms in a recession, at least
you pay for increase, decrease or stay the same? among regular users. Those
prices have remained rela-
More About the same Fewer 150M
tively steady, and the typical
129.4M 126.1M 123.7M consumer subscribes to only
USA 14% 72% 14% one music service. Unless
UK 10% 81% 9% 100M prices rise dramatically, a
Germany 21% 71% 8% recession is unlikely to spark
125.1M 120.5M 116.4M a large wave of cancellations.
50M
SOURCE: REUTERS “2022 DIGITAL NEWS REPORT”
NOTE: DATA FIELDED JAN-FEB 2022
» News media subscriptions
4.3M 5.6M 7.3M are much more likely to be
2019 2020 2021 impacted, especially in the
U.S. Music Streaming Subscriptions print sector. Print’s down-
SOURCE: ALLIANCE FOR AUDITED MEDIA ward trajectory will likely
NOTE: DATA FROM TOP 50 CIRCULATION TOTALS
Churn Household Penetration accelerate as the economic
climate worsens, both from
70% consumers canceling sub-
Global Music Streaming Paid Subscribers
scriptions and publications
60 664M
that opt to shutter.
586M
600M
50
523M » Digital news media is more
difficult to predict. A survey
40
found that most consum-
400M ers plan to keep all their
30
subscriptions in the next
year, though this data was
20
200M
collected before the inflation
crisis worsened. Still, those
10
willing to pay for media subs
may be unlikely to cancel
0
Q4 '20 Q1 '21 Q2 '21 Q3 '21 Q4 '21 Q1 '22
them, as the vast majority
2021 2022E 2023E
of consumers already do not
SOURCE: KANTAR SOURCE: COMPANY DATA, GOLDMAN SACHS GLOBAL INVESTMENT RESEARCH pay for news at all.

P.7