Tariffs, Markets, and Recession: How Hollywood Will Be Impacted

Broad tax rates are about to be implemented, causing international stock markets to drop significantly, and a number of economic experts are becoming increasingly worried about the possibility of a severe economic downturn.

Currently, the global economy is experiencing an uncertain phase that’s reminiscent of periods long past in history. This turbulence won’t bypass the entertainment industry, particularly Hollywood.

Tariffs are like a looming crisis in Hollywood, compelling studios and viewers alike to make financial adjustments,” comments Scott Purdy, head of U.S. media at KPMG. “Advertising spending will likely decrease as media companies cut back on content costs, which could slow down the industry’s expansion. The concept of ‘streamflation,’ where entertainment budgets decrease leading to fewer subscriptions, movie nights, theme park visits, and live events, may reappear. The industry is temporarily bracing itself, waiting for any financial uncertainties to pass.

To put it simply, even though the entertainment industry doesn’t rely on importing goods like Nike or Toyota do, economic factors such as tariffs, recessions, and market instability can still have widespread indirect impacts.

Here’s how the entertainment business could be impacted:

Advertising Uncertainty

As a passionate fan, it’s hard not to notice that every entertainment giant, whether it’s YouTube, Netflix, Disney, or Warner Bros. Discovery, has essentially transformed into an advertising company. But here’s the catch: when economic downturns strike, these ad budgets are often the first to take a hit. Unfortunately, as The Hollywood Reporter pointed out, the current turmoil couldn’t have come at a worse time for us fans, since the networks and streamers are about to start their negotiations with advertisers in the very near future.

Various businesses, including consumer goods manufacturers and retailers, are likely to experience a direct effect from tariffs and may need to reassess their spending habits. Technology companies, for instance, Apple, face challenges with both their imported products and e-commerce platforms like Amazon and Meta. The travel industry is also predicted to feel the impact of these changes.

The advertising market is expected to experience hardship, with the exact extent, duration, and geographical impact still uncertain.

Streaming Boom or Bust

During an advertising slump, the streaming industry might face significant challenges. However, it could potentially thrive during a recession. With budgets becoming tighter, streaming platforms such as Netflix and Disney+ could present attractive options, offering endless entertainment at affordable monthly prices. Essentially, in this economic climate, subscription to streaming services may experience a boost, similar to their surge during the initial phases of the COVID-19 pandemic (even though people were not confined to their homes all day).

However, there’s a related risk: It’s simple to join streaming services, but just as straightforward to leave them. In an era where customer turnover is already significant, a recession might intensify this trend, making it more challenging to keep subscribers who may switch from one service to another on a monthly basis in search of new content.

As a gaming enthusiast, I’m always on the lookout for affordable streaming options that don’t break the bank. Even in these tough ad times, it seems like more folks are gravitating towards these platforms because they offer good value. YouTube is one of the big players that will undoubtedly benefit, but I’ve also noticed Fox’s Tubi and Paramount’s Pluto gaining popularity. Other FAST channels might see a surge in viewership too. It seems like more people are sticking around for these cost-effective streaming services.

Production Problems

Due to a tightening of expenses in the entertainment sector, it’s expected that programming budgets will decrease. As more money is being poured into live sports by all companies, these reductions in spending will likely be made at the cost of entertainment programming.

Why? The Costs for live sports are mostly fixed.

As an ardent sports enthusiast, I’d like to highlight a fascinating fact about NBC’s investment in NBA games. For the next eleven years, they’ll be shelling out approximately $2.45 billion annually. On top of this hefty fee, they’re expected to spend hundreds of millions more each year on game production and studio programming. This budget isn’t something that can be significantly reduced.

Looking at the sports rights agreements that major TV broadcasters and streaming platforms have signed, encompassing leagues like the NBA and NFL and everything in between, it’s the entertainment sector within their portfolios that will likely need to adapt their budgets. As a result, you might see fewer original scripted programs as these platforms prioritize safer investment options. Instead, there could be an increased emphasis on unscripted shows, which can stretch the same budget further and provide more programming hours.

Experiential Ennui

Following the pandemic, there was a massive surge in demand for live experiences and events such as concerts (like those by Taylor Swift), sports games, theme parks (such as Disney), and other businesses that offer unique experiences. This surge led to unprecedented revenues for companies like Live Nation and sparked a significant increase in investment within this sector.

In tough economic times like a recession, it’s common sense that people tend to reduce luxuries from their budgets, such as high-priced concert tickets or vacations. Even though there will still be premium options available for events, the inflated prices for regular tickets may not hold up due to market changes. Similarly, extravagant trips to places like Disney World or Universal Studios might see a decrease, with more deals and discounts becoming widespread.

Moreover, during a meeting on ABC News on April 3, Bob Iger, CEO of Disney, highlighted that the construction of their upcoming cruise ships demands steel and other essential resources. Not only that, but also the development of new theme park realms and attractions necessitates these materials as well.

The Licensing Cash Runs Dry

In Hollywood, it’s not hard to find lucrative deals, especially good licensing agreements. Studios, television networks, and streaming platforms possess invaluable Intellectual Property (IP), which countless consumer product manufacturers are eager to exploit for higher sales. Look around stores like Walmart or Target, you’ll see a multitude of products that resemble popular franchises or characters – items ranging from toys, makeup, games, and clothing.

Running an entertainment company offers a low-risk investment opportunity as it primarily involves managing products rather than manufacturing them. While it’s crucial to maintain brand consistency and quality standards, the associated production risks are minimal (although maintaining brand reputation is always a concern, as demonstrated by last year’s controversial Wicked doll incident). However, when you notice significant drops in shares for companies like Mattel (-14%) and Hasbro (-11%), it’s clear that something troublesome is happening.

It’s likely that costs of items such as toys, games, clothing, and more will increase significantly, or the profit margins may shrink drastically, or both. There is a possibility that licensing agreements might be terminated, and manufacturers could concentrate on their primary product lines instead. Alternatively, sales could drop, reducing the lucrative income for those who hold intellectual property rights.

Notice how Disney derives a significant portion of its profitability from licensing agreements. While it contributes only around 5% to their total revenue, it accounts for about 13% of their operating income. This indicates that these licensing deals offer relatively high profit margins.

Will Movie Theaters Win or Lose?

Many theater executives are already eyeing 2026 as a potential turning point for the movie industry, but a recession certainly doesn’t make things clearer. Interestingly, history indicates that economic downturns might not be as damaging to cinemas as some people might believe.

2008 witnessed only a minimal 0.3% decrease in box office revenues compared to previous years, while 2009 showed a significant increase of 10%. The following years, 2010 and 2011, experienced slight reductions but still remained relatively stable. Interestingly, the dot com crash in 2000 didn’t seem to affect box office revenues at all. Similarly, the Black Monday crash in the late ’80s had minimal impact on box office growth, with steady growth observed from 1987 to 1989. During times of economic downturn when people tend to cut back on concert attendance and expensive vacations, a trip to the movies might be a more affordable option?

Conversely, over the past few years, movie theaters have been favoring high-end formats such as Imax and 4DX, and they’ve been charging higher prices for these premium experiences. Even though industry professionals understand that cinema visits should offer something better than what viewers can get at home, going to the movies has become a more costly outing due to these additional features.

It’s possible that you might see more discounted tickets, possibly even for high-end movie theaters, becoming more frequent. Whether this will boost or diminish overall ticket sales remains uncertain.

Physical Media Pessimism

Although the majority of the entertainment industry doesn’t primarily deal with tangible items, certain aspects remain interconnected. For instance, televisions, despite their digital nature, do require financial investment. Moreover, modern TVs often come equipped with WiFi capabilities, which significantly contributes to the growth of streaming platform users.

As a passionate enthusiast, I find myself pondering over potential changes in the pricing strategies of streaming sticks and boxes from Roku, Apple, Amazon, and Google. It seems these prices might increment, while simultaneously experiencing a decline in advertising revenue. This predicament is intriguing given that these devices are primarily sold at cost, with the anticipation of recouping those expenses through ads down the line.

In a world where tariffs are imposed, video games and their consoles, which are already high-end products, will likely become even more expensive. Even Nintendo, the manufacturer of the popular Switch console, has pushed back pre-orders due to concerns about potential tariff impacts and changing market situations.

Deal Downers

Under the new administration, many Wall Street executives eagerly anticipated the potential for Mergers and Acquisitions (M&A). However, not only has antitrust regulation continued to be robust, but the decline in the stock market has effectively halted such transactions for now.

StubHub postponed its Initial Public Offering (IPO) due to the market’s instability, but they are eager to resume discussions once conditions improve. Given the current unpredictable nature of business operations and economic fluctuations, it’s not just IPOs that will temporarily cease; many other ventures may also slow down or pause.

According to Boston Consulting Group’s data, M&A activity tends to decrease during economic downturns because it becomes challenging to accurately determine valuations and make predictions. In such situations, CEOs and boards often hesitate to sell at discounted prices (unless there’s a financial crisis within their company). Given that Warner Bros. Discovery has lost 30% of its value in the past month, one might question whether David Zaslav is eager to negotiate a deal under these circumstances, especially if the decline could potentially be reversed if tariffs are lifted.

Despite facing increased difficulties in selling TikTok due to President Trump’s application of tariffs as a bargaining tool with China, negotiations are becoming more complex. This complexity is likely to lead to revised valuations, profit margins, and business models, ultimately resulting in a decrease in the number of deals made.

2025-04-05 00:55