U.S. Markets Plunge, Media Stocks Fall on Global Jitters Sparked by Brexit Vote
U.S. equities markets opened sharply lower on Friday on the heels of the U.K.’s vote to withdraw from the European Union.
The Dow Jones average was down more than 500 points at the 9:30 a.m. ET start of trading on Friday. U.S. investors were no doubt reacting to the plunge in U.K. and European markets overnight as the reality of the U.K.’s Brexit referendum sunk in. The Nasdaq was off more than 168 points.
Media stocks were not immune to the market’s undertow. Discovery Communications, one of many U.S.-based media companies that is banking heavily on international growth, fell as much as 7.1% in trading midda, while 21st Century Fox was down more than 6%. Lionsgate was off by nearly 5%.
Media stocks like Disney, Time Warner, Netflix and CBS Corp. registered declines in the 3%-4% range. AMC Networks, with the smallest international footprint of the largest media congloms, was mostly spared with only a decline nearing 2% in midday. Shares in Viacom fell more than 4%.
The media biz like most business interests in the U.K. were counting on the vote to fall the other way. Executives are likely to be in a scramble to figure out how the disengagement with the EU will affect their U.K. and European operations.
Another big concern about the fallout from the U.K.-EU divorce is the impact on currency fluctuation rates. The strong dollar has already been putting a dent in Big Media earnings for the past few years at a time when all of the majors are looking to invest more in overseas growth markets. The promise of more volatility to come in currency rates is unwelcome news for Hollywood’s majors.
Discovery acknowledged as much in a statement issued Friday morning. The company has already taken steps to shield its downside in the U.K. and Europe with financial instruments that hedge its exposure to big swings for the pound and euro by as much as 80% of its business activity in those currencies through the end of 2017.
“Discovery Communications respects the decision of the UK people in this historic vote to leave the European Union. Discovery Channel launched in the UK in 1989 and since then it has become one of our biggest markets and a critical creative and business hub,” the company said. “As a global company with a significant presence in 220 markets, we are accustomed to operating in an industry and a world where change is constant. We will work closely with UK and EU leaders to successfully navigate this change and find new opportunities to shape our future. In the short-term and medium-term, our currency hedging program will significantly minimize the impact of the Brexit vote on our financial performance.
In a research note Friday, RBC Capital Markets suggested Discovery had the greatest direct exposure to international markets, followed by 21st Century Fox and Time Warner. CBS Corp. and Scripps Networks Interactive had the smallest direct connections to the European markets through their holdings.
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