Volatility Bites: Why Hollywood Is Terrified of Tariffs

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In March 2009, approximately a few months following the 2008 stock market collapse, Disney’s CEO, Bob Iger, convened shareholders at Oakland’s Paramount Theatre, a brief distance from Pixar’s headquarters in Emeryville. Addressing the gathering, he said, “We are assembling during what may be the hardest economic period of our lives. These circumstances are such that not even the sturdiest companies can entirely avoid their impact.” However, he expressed confidence that Disney’s brands, products, and people would rise to meet the challenges ahead.

After a while, Disney also bounced back along with the economy. However, this recovery didn’t lessen the short-term hardship experienced during the economic downturn. Despite the severe impact of the crash, the media business had a robust base to lean on. Intriguingly, the year 2008 marked the high point for pay TV, according to Leichtman Research Group, with around 100 million households (or 87 percent) consistently paying their cable or satellite bills each month. During this challenging period, the entertainment industry continued to benefit financially.

Currently, the economy seems to be teetering on the edge once more, with a tariff-related jolt causing turbulence in international markets. However, unlike the 2008 crisis, the financial landscape is significantly transformed. For instance, Disney serves as an illustrative case study. While its advertising and theme parks sectors experienced setbacks due to consumers rethinking travel plans, ESPN actually saw growth. This was largely due to contractually-agreed rate increases and the widespread availability of pay TV.

Pay television, once considered an essential household necessity akin to electricity or water, has significantly dwindled in popularity. Now, it serves merely a fraction of its original size, with roughly 70 million households and numbers swiftly decreasing. Modern consumers tend to obtain their entertainment, news, and sports from a diverse assortment of streaming platforms, such as YouTube and Netflix, which are sometimes deemed indispensable while others are perceived as optional. Unlike traditional cable TV, canceling the service is effortless – just a simple click of a button.

Meanwhile, the 2020 pandemic unexpectedly favored traditional media venturing into streaming services, as people mostly stayed at home (due to the pandemic). However, by 2025, things have changed dramatically, with economic inflation worries dominating and a myriad of other entertainment choices available.

In a report titled “Persistent Chaos,” Bank of America analyst Jessica Reif Ehrlich pointed out that historically, cable companies have been considered safe investments during economic downturns. This perception has stemmed from the fact that their services are utility-like and subscribed, with limited competition. However, today’s cable operators encounter more intense competition in broadband and video services compared to past recessions, which could alter the traditional view of them as reliable options during an economic slump.

It’s generally understood that advertising is affected during economic recessions. However, there’s a growing sense that this recession might be more severe than previous ones. In 2008, television was the primary platform for advertising, taking up a large portion of ad spend as per Magna. The current advertising landscape, however, has undergone significant changes. Now, tech companies like Google, Meta (formerly Facebook), and Amazon have taken over the advertising industry, focusing on performance-driven ads. While television’s dominance has diminished, it hasn’t been entirely replaced – streaming and connected TV ads are increasing, but not at a pace fast enough to make up for the losses of traditional linear TV.

In simple terms, a recession might cause the downfall of traditional television broadcasting, as it has for radio and newspapers during previous economic downturns. A report by MoffettNathanson suggests that if a recession occurs, up to $45 billion in ad revenue could be lost. This could lead to an increased shift in advertising budgets away from linear TV towards connected TV and other digital platforms at an even faster rate, potentially resulting in a more permanent change in the allocation of resources.

He went on to say that we remain confident that digital marketing, particularly online advertising, will outperform traditional TV and older methods. In a more conservative market, advertisers are likely to focus on performance-oriented ads instead of general branding campaigns. This trend tends to advantage digital platforms that offer measurable results.

2008 saw Brad Adgate, a former Horizon Media executive, experiencing the widespread job cuts in advertising and media industries, a period he recalls as turbulent. “What stands out most to me,” he remarks, “is the fear that TV, in particular, may struggle amidst the current circumstances.” He expresses worry that tightening budgets might intensify competition for video and television, as marketers now have numerous options to choose from.

However, not even tech titans are immune. Amazon CEO Andy Jassy was questioned on CNBC about potential struggles in their advertising sector on April 10th. In response, he pointed out that problems such as tariffs can lead to broader economic issues, like decreased demand or increased inflation.

At Warner Bros. Discovery, CEO David Zaslav communicated with the team asking them to tighten their belts and minimize non-essential expenses due to “financial instability in the market and decreased trust among consumers.

In summary, live sports, especially professional football like the NFL, continue to hold a significant advantage on TV. Their reach is unparalleled, and advertisers are unlikely to significantly reduce their investments in sports, given their robustness even in sluggish advertising environments. In other words, sports have proven to be durable in weak advertising sectors.

Nevertheless, even in these areas, any advantage is fragmented and counterbalanced. Disney derives profit from sports through ESPN, yet its theme parks are particularly vulnerable during an economic downturn. Although Disney and NBCUniversal’s experiences business plays a significant role in defining their brands across various economies, during a recession, the high fixed costs of these ventures become a hindrance as consumers tighten their budgets. Additionally, both companies have historically profited from consumer products like toys and clothing, thanks to lucrative licensing deals. However, with the imposition of heavy tariffs on China and Vietnam, these profits are becoming increasingly stressed. On a positive note, Reif-Ehrlich suggests that the launch of Epic Universe may assist NBCU in addressing some of these challenges, considering the likely demand for the innovative Orlando theme park.

As a gamer, I find myself optimistic about the future of the music industry, even amidst the economic uncertainties we’re facing. Back in 2008, when Spotify was just a Swedish experiment and the record labels were struggling, it seemed quite different. But now, things are looking up. In fact, many analysts view Spotify and the stocks of the music industry as a safe investment during tough economic times. TD Cowen’s Doug Creutz even stated on April 9th that he doubts a recession would lead to significant increases in cancellations for these reasonably priced music subscription services. So, despite the doom and gloom, I see green shoots of recovery in the music industry.

In comparison to other entertainment firms, Netflix is generally viewed as “more robust” by analyst Nathanson, largely due to its strong position in subscription streaming and the minimal role advertising plays in its business model, providing it with a unique degree of flexibility that traditional media companies lack. However, it’s important to note that even Netflix faces challenges. As JPMorgan’s Doug Anmuth pointed out on April 8, economic difficulties or a recession could potentially postpone price increases in certain markets.

Despite the ongoing excitement, I can’t help but feel the tension lingering, with tariffs and potential recession not being the only uncertainties looming over the gaming and entertainment industry. A seasoned media insider shared that they’ve been discussing potential scenarios where international audiences might start losing interest in American pop culture. This could lead to a shift from globalized entertainment, which has been instrumental in spreading U.S. franchises and brands worldwide, towards more locally produced content.

In such a scenario, some of Hollywood‘s key advantages – its extensive library of beloved intellectual properties (IP) – might actually become liabilities, and the implications of this new order, should it materialize, would be far-reaching.

This tale was initially published in the April 16 edition of The Hollywood Reporter’s magazine. If you’d like to get the magazine delivered, follow this link to subscribe.

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2025-04-16 15:55