Multimedia heavyweights have seen their share prices fall under a great deal of pressure in recent years. Undoubtedly, the prominent industry headwinds bring up many unanswered questions about the fate of its market players. Sony (NYSE:SONY) and Disney (NYSE:DIS) are two of the bluer blue chips in the media scene (and I’m bullish on both stocks), but their size and vast libraries of intellectual property (IP) alone haven’t quite been enough to navigate the rough terrain without feeling the impact.
Indeed, consumers are continuing to change their spending patterns amid inflation. When it comes to entertainment content, which is a discretionary service, consumers can’t be expected to pay higher prices unless there’s a perception that they’re receiving more value.
Overcoming the “Magnificent Seven Effect” Is Key
Undoubtedly, we tend to hear about the Amazon (NASDAQ:AMZN) effect when it comes to digital retailers, whereby consumers expect a high standard (free, fast shipping and wide selection when it comes to Amazon), perhaps unrealistically high for most rivals. I believe a similar situation is panning out in the media scene whereby one top juggernaut is raising the bar on offering consumers the best value.
The media scene is feeling a bit of a pinch from the likes of Netflix (NASDAQ:NFLX) when it comes to video streaming and Microsoft (NASDAQ:MSFT), with its video-game subscription service Xbox Game Pass, which is basically the “Netflix of video games” pinching gaming firms. Call it the Netflix effect, Game Pass effect, or even the Magnificent Seven effect, if you will.
In any case, once consumers are spoiled by a firm that offers good value for money, it can be difficult to get them to pay for an offering that’s not the absolute best from a value proposition standpoint. Indeed, this is likely why Netflix’s streaming rivals have been humbled while NFLX stock has gained serious traction in the past two years. The same can be said of Xbox Game Pass and its effect on video game sales.
As the biggest rival to Microsoft Xbox, Sony stands out as an intriguing value play that could gain considerably if it’s able to effectively respond. Though Sony PlayStation has its own gaming service, PS Now, it’s just not at the same level (pardon the pun) as the likes of an Xbox Game Pass when it comes to the breadth of content and the strength of the pipeline.
Similarly, Disney seems to be a top rival to Netflix with Disney+, a streaming platform that’s well past its prime since its early days of growth during the pandemic lockdown era. Like Sony, however, Disney is incredibly underrated and oversold relative to its leading rival.
Therefore, let’s use TipRanks’ Comparison Tool to see which of the arguable number-two players in their respective multimedia sub-industries has a better shot of gaining over rivals from here.
Sony (NYSE:SONY)
Sony is a Japanese multimedia firm with film and gaming businesses that stand out as the major needle movers. On the film front, Sony has been feeling the pressure at the box office, with the summer movie season off to a rather slow start. Management is optimistic the new Bad Boys film can turn the tide. Additionally, Sony Pictures reportedly considered using artificial intelligence (AI) to cut costs and make new content in “more efficient ways.”
Though controversial, I think AI represents a massive opportunity for the industry to trim away production costs. And the good news is using AI does not have to eat into creativity by replacing writers, actors, and all the sort. AI isn’t just a cost saver in the grueling Hollywood scene; it’s also a tool that could make game development more economical.
Indeed, the use of AI in content production may be a source of disgust for some, but I am encouraged by comments made by Sony’s CEO. AI is “not a substitute for human creativity.” All things considered, I like the direction Sony is headed as it embraces new technology. Though the benefits of incorporating AI will take time to work their way into the stock, I must say I’d be willing to step in as a long-term investor with shares going for 16.9 times trailing price-to-earnings (P/E).
Perhaps Sony could leverage AI graphics upscaling to encourage consumers to upgrade to the coming PS5 Pro as its hardware sale slog continues.
What Is the Price Target of SONY Stock?
SONY stock is a Strong Buy, according to analysts, with three unanimous Buys assigned in the past three months. The average SONY stock price target of $112.93 implies 34.5% upside potential.
Disney (NYSE:DIS)
Disney is also looking to innovate its way out of a multi-year slump with a pretty solid and overlooked metaverse strategy. Such a strategy focuses on next-generation storytelling. Undoubtedly, Disney is a big name that’s backing the Apple (NASDAQ:AAPL) Vision Pro, a mixed-reality headset that could take off once it hits the international market this summer.
Indeed, Apple needs deep-pocketed content creators like Disney to help bolster device sales. Meanwhile, Disney needs a new medium to gain a leg up over Netflix, which has continued to dominate in video streaming but has shied away from announcing any metaverse plans.
As for Disney+, I think it’s on the right track. Investors just need to be more patient. In Q2, Disney+ had 153.6 million subscribers, with six million new core subscribers brought on. That’s a healthy growth pace for the streaming service, given the recent push into operating income profitability ($47 million as of Q2 2024, up from steep losses reported in past quarters) with Disney+.
At 18.8 times forward P/E, Disney goes for a huge discount to the top firm, Netflix. With Disney+ on the right track and embracing the Metaverse, I see DIS stock closing the gap with NFLX one day, perhaps when the Metaverse takes off, and Netflix is left scrambling to enter it.
What Is the Price Target of DIS Stock?
DIS stock is a Strong Buy, according to analysts, with 20 Buys and five Holds assigned in the past three months. The average DIS stock price target of $129.38 implies 28.3% upside potential.
Conclusion
Sony and Disney are two trailing multimedia firms that both look like great buys. Both are Strong Buys, according to Wall Street right now, with year-ahead upside potential in excess of 28%. Personally, while I’m bullish on both, I’d much rather own Disney over Sony because it seems like a less daunting task to take on Netflix over Microsoft. Arguably, Disney has “wild cards” to beat Netflix in the longer term, with its metaverse strategy in place.
