With the outlook for the global economy getting bleaker by the minute, there is every reason to expect a recession is just around the corner.
But whether or not he is, Naveen Sarma, senior director at S&P Global Ratings, an experienced credit analyst specializing in the media business, doesn’t matter. An economic downturn doesn’t have to cross over into recession territory to have multiple implications for the entertainment and technology industries.
“If consumers get stressed and tense and decide to cut spending, this will eventually affect the media and entertainment sector, even if there is no recession,” Sarma said in the latest edition of the program. Diversity Podcast “Strictly on the case.”
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From advertising to cutting the cord, he watches every indicator when a bear market hits. His main concern is that all streaming services are competing for subscription dollars, which could face increased competition if there were fewer dollars.
“What happens when a recession hits and consumers watch how much they spend on streaming services? They spend a lot of money and decide they will cut back on services or not stay as long as they used to,” Sarma said. “And that affects the operating performance, cash flow performance and financial performance of media companies.”
The rise in interest rates is one of the key indicators important for Sarma, as he expects it to have a dampening effect on the consolidation that has been seen in the sector in recent years. “The cost of capital has risen significantly, and this has definitely hurt deals and M&A,” Sarma said. “We’ve heard anecdotal stories of deals that made it to the finish line but died because of expensive funding.”
The episode marks Sarma’s unprecedented third appearance on Strictly Business, which also discussed the macroeconomic impact on media and entertainment in 2019 and 2021.
“Strictly business” is diversityA weekly podcast featuring conversations with industry leaders about the business of media and entertainment. A new episode comes out every Wednesday and is available for download on iTunes, Spotify, Stitcher and SoundCloud.