The entertainment industry is projected to grow to over $650 billion in the U.S. by 2027. Actors, producers, musicians, athletes and agencies make money.
Is there a way to join in on the profits as an investor? The entertainment industry is expansive but is constantly consolidating. Whether it's a specific medium, segment, type or market, this article will help you identify and navigate the many ways to invest in the entertainment industry.
The entertainment industry is a vast and multifaceted market sector that includes TV, radio, books, movies, music and other forms of media. At the end of 2023, the entertainment apparatus had a global market value of more than $2.5 trillion, and many of the major players are influential publicly traded companies.
Understanding the Entertainment Industry
The entertainment industry comprises many media. One common link is that it includes public and private companies. Public companies provide transparency and liquidity for investors. While they utilize the public markets for capital to operate their businesses, investors can profit from their stock performance. It's a two-way street that presents an opportunity for the right investor because the industry is broad.
Ways to Invest in the Entertainment Industry
The entertainment industry is broadly composed of many segments. You can choose a specific segment that suits your preference or consider an investment in multiple segments by investing in major media companies. Here's a breakdown of some of the different components of the entertainment industry.
Filmed Entertainment
The filmed entertainment industry includes companies involved in developing, producing, exhibiting and distributing movies and TV shows. It can also include companies with intellectual properties (IPs), including popular characters like superheroes. These companies may license their characters for royalty or produce the content in-house.
Production companies include the major movie studios. The filmed entertainment industry also includes streaming services that exhibit and distribute content from movies, shows and exclusive videos for a subscription fee or by ad-supported methods. Movie theaters were once a prime exhibition venue for motion pictures, but they are transitioning and consolidating as streaming has taken over the medium.
Music
The music industry comprises companies that compose, record, promote, exhibit, and distribute music. Music publishers and record labels are music stocks to invest in. It also includes talent agencies that represent the artists. It includes music streaming platforms as well as subscription music and podcast services. While fleeing in numbers, it can involve music retailers or outlets that sell physical copies of music. As more music goes digital, artists seek ways to supplement their dwindling royalties. Live events promoters that provide venues and ticketing services for live concerts and performances are crucial to the music industry.
Book Publishing
Books are another segment of the entertainment industry. While they've gone from physical copies to digital, there are still ways to invest in the medium. Book publishers discover, edit, produce and distribute books in physical, digital and audiobook formats. Distribution companies play the middleman delivering from the publishers to the retail outlets, including stores and libraries. Book retailers include physical brick-and-mortar stores and digital marketplaces that sell physical, digital and audiobooks.
Video Games
The video game industry comprises many smaller companies that work with larger publishers. These developers are companies that create the games, including the story, design, coding, testing and upgrades. Video game publishers will finance the video game projects, market them, and distribute the physical and digital copies to retailers and directly to consumers.
These also include mobile games that can play on connected devices like smartphones and tablets. Game retailers have brick-and-mortar stores that sell physical copies of video games. Console manufacturers create video game hardware systems used to play video games.
PC makers, accessory makers and CPU and graphic chip makers are essential for PC-based video games.
Serious gamers will spend thousands of dollars on gaming PCs, upgrading graphics cards, displays and accessories. Accessory makers manufacture hand controllers, gamepads, virtual reality (VR) headsets, audio headsets and peripherals. Game engine developers create the gaming software on which video games are developed. Rather than spend millions to create an engine, some companies have already coded gaming engines that developers can license to build their games.
Entertainment has gone digital in a big way with e-sports leagues. E-sports target audience is estimated to be over half a billion worldwide. Many e-sports leagues are also public or owned by public companies in the entertainment industry. Many of these entertainment companies have also entered the blockchain. You can find NFT stocks to buy if you understand the NFT market or want to start with a bitcoin stocks list.
Types of Entertainment Industry Investments
The entertainment industry continues to grow and consolidate. Content producers are merging with talent agencies and studios acquired by media companies, which are acquired by significant distribution and broadband networks. It's a proverbial food chain in the entertainment industry. There are many routes to take when investing in entertainment stocks.
Stocks
The direct method of investing in the entertainment industry is to find companies that fit your criteria and invest directly in their stock. Investing in stocks comes with risk and volatility. It will help if you stay abreast of the industry and specific news about the company. It's important to manage risk. Make sure that you aren't going all-in on a single stock and have a long term plan for each security you purchase.
ETFs
You can look at exchange-traded funds (ETFs) to spread your risk from investing in single stocks. ETFs trade like stocks but are like mini mutual funds that buy and manage a large basket of stocks that fit their theme. There are ETFs concentrated on the entertainment industry or in specific parts of the entertainment industry. Professional fund managers manage ETFs, requiring less research and monitoring than individual stocks. It's helpful to ensure good liquidity by sticking to ETFs that trade a minimum of two million shares a day.
Investing in Entertainment Stocks
What type of entertainment stocks are you looking to purchase? The sector is broad and you’ll likely need to narrow your focus and find a profitable industry niche. For example, if you want to invest in movie stocks, you’ll need to decide which side of the business looks most promising. Are movie production companies looking cheap during your analysis? How do metrics compare to firms in the distribution channel? Are movie theaters still struggling to draw people off their couches and see the movies? These are just a few of the questions to ask yourself when debating your asset allocation in entertainment stocks.
So you decided to take the plunge and invest in the entertainment industry. It's essential to assemble an entertainment stocks list and prepare and research before pulling the trigger. Here are some critical steps to do just that.
Step 1: Find entertainment stocks to invest in.
To find potential candidates to invest in, you can check financial news and research sites like MarketBeat.com and search by keyword "entertainment stocks." You can also peruse the headlines for entertainment news to find companies.
Then look up stock symbols for entertainment and media companies by typing in the name of the company in the "Search for companies, news, or tools" in the "find now" tab on MarketBeat. It will find the stock symbol for you. Once you have a stock, it's time to research the company.
Step 2: Research the stock.
Perform fundamental analysis on the stock. This means going through recent press releases and earnings reports. The earnings report press release is usually good enough, but looking at its 8-K filing gives the complete picture. Compare the financial ratios like price-earnings, cash-per-share, price-book and price-sales to industry peers. Try to form your opinion of the company first.
Consider reading articles on MarketBeat.com to get further insights. You should be able to speak about the company as if you were pitching the stock to a friend. Is there top and bottom line growth? What near-term catalysts are there? What are secular trends and tailwinds for the business? What are the headwinds?
Step 3: Research the chart.
Use technical analysis on the stock. Pull up the price history on a daily candlestick chart. Identify where the stock is making higher highs and higher lows on pullbacks to determine if it's in an uptrend. Vice versa, identify if the stock is in a downtrend of lower highs on the bounces and lower lows on the drops. Try to draw the trend channel to see the price trend.
Spot price levels of support that hold when prices fall and resistance levels that prevent prices from rising any higher. You can use these levels as entry and exit targets, profit or stop-loss. It's a good idea also to compare the daily charts of several entertainment stocks to see which ones are moving in the same trend and which are diverging. This gives you a bird's eye view of the general landscape for the trend and direction of entertainment stocks.
Step 4: Plan your trade.
Have your brokerage account ready. If you still need to set one up, you can do it online or through an app. You will need a brokerage firm to place any trades in the stock market. Once you've done your research fundamentally and technically, it is time to prepare your trade. Use the support and resistance levels identified on the candlestick charts as entry and exit price levels. Only chasing the stock will take patience if it reaches your entry price.
Always keep a stop-loss in mind. This is the price where you will sell the investment for a loss to prevent a more extensive loss. Stop-losses should be just under solid support levels. Make sure you allocate the correct number of shares so that your eggs aren't all in one basket and you don't overleverage and risk getting a margin call. Once ready, place your orders and execute the trade(s).
Step 5: Manage your trade.
Once you are in your position(s), monitor the stocks. It doesn't have to be daily, but stay aware of how it's trading and if it's nearing your price target or stop-loss levels. Many brokerage platforms provide alerts that you can customize to send you an email if the stock trades to a specific price level.
Ensure you read the news and press releases at least once a week to stay abreast of any material developments. From here on out, it's a matter of letting the stock move to a target price to sell or trim or to a stop-loss level to trim or sell the position.
Pros and Cons of Investing in the Entertainment Industry
As with any investment, weigh the pros and cons. Here are the pros and cons of investing in the entertainment industry.
Pros
The benefits include:
- Upside potential: The upside potential for entertainment stocks is a crucial benefit of owning stocks in the industry. Entertainment is a growing industry projected to have a compound annual growth rate (CAGR) of 20.82% between 2022 to 2027.
- Dividends: Some of the best entertainment stocks pay a dividend, which can provide income and capital appreciation.
- Exposure: Exposure to global markets and customers is what investing in media companies can provide for investors. In the age of social media, top musicians, actors, athletes, and celebrities are expanding their popularity around the globe.
- Diversification: Diversification can be one of the best ways to spread risk for a stock portfolio. Entertainment stocks can help diversify your investments in different sectors and industries. Pay attention to the essential weighting of your positions, and don't put all your eggs into one sector or segment.
Cons
Now, the downsides:
- Downside risk: Just as stocks go up, they can also come down. Downside risk is prevalent with entertainment stocks. Cultural trends can be fickle and fleeting. Artists and content can be hot one week and dropped the next. This can result in an unexpected drop in revenues or profits which can hit share prices.
- Volatility: Stocks are dynamic as they fluctuate in price daily. Volatility is to be expected in entertainment stocks due to their exposure to the trends and fads that can change on a dime and impact viewership. Some media stocks also tend to trade sporadically, depending on their liquidity. Investor sentiment can change quickly, driving shares lower.
- Industry risk: Changes in the entertainment industry revolving around regulation or trends can impact entertainment stocks. When one major entertainment company reports an earnings warning, it can result in falling share prices for entertainment stocks. There may be high expectations for a movie to score big at the box office, only to fall short and impact earnings expectations.
You can find stock candidates by identifying which segment(s) of the entertainment industry you wish to invest in first. Search for specific companies making news in mainstream media or start with a list like top-rated stocks to buy on MarketBeat and pull media and entertainment stocks.
Investing in Mega Entertainment Brands
While you can diversify your investment in top entertainment stocks or an ETF, consider investing in mega-media companies participating in multiple industry segments. These mega-corporations may own many brands, including movie and TV production, talent management for artists, marketing, promotion, and a video game division.
Many of these big entertainment companies have streaming networks that can operate vertically integrated from production to exhibition and distribution, all handled by the company. These can be some of the best entertainment stocks to invest in.
FAQs
Here are some frequently asked questions for investing in the entertainment industry.
Can you invest in the entertainment industry?
Yes, you can invest in companies that participate in the entertainment industry. It's just a matter of which entertainment segment you want to invest in, from film/TV to music, to books and video games. You can also diversify, let a professional handle it and find an entertainment industry-themed ETF.
What are good entertainment stocks to buy?
The gauge of a good entertainment stock depends on your preferences, investment time, and risk profile. Major entertainment stocks have their hand in every industry segment to consider as more stable investments. Many major entertainment companies have stood the test of time for their business and stock with a history of growing dividends. If you like playing video games, consider starting your search with a list of stocks.
In which industry is it best to invest?
The "right" industry is subjective to an individual's investment time horizon, goals and risk profile. The S&P 500 has 11 sectors comprising 24 general industries and over 150 sub-industries. It helps to familiarize yourself with the stock market sectors on MarketBeat. The best industry to invest in is the one you're most familiar with and comfortable investing in. If you can't comfortably sleep holding a position at night, consider a different sector to invest in or a more reduced-sized position.
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