Why This Strategist Is Wary of Entertainment Stocks

On the Sept. 28, 2026, episode of The Morning Filter podcast, hosts Susan Dziubinski and Morningstar Chief US Market Strategist Dave Sekera discuss a viewer question about entertainment industry stocks. Here is an excerpt from the show.

Why We Don’t Like Entertainment Stocks

Susan Dziubinski: It is time for our question of the week. As a reminder, if you have a question for us, you can send it to our inbox, which is themorningfilter@morningstar.com. This week’s question comes from Carl. And Carl asks, “Dave, I’m hard-pressed to think of a time I’ve heard you talk about the entertainment industry. What do you think of the sector? Are there any stocks you’d recommend or recommend folks steer clear of?”

David Sekera: From an investing point of view, you should never let your own personal biases influence your investing. Having said all that, I’m a bit of a hypocrite here, and I have let my own personal bias in this case probably steer me away from recommending some of the stocks in this industry. The reason being I’m just not a big fan of the dynamics from an investing point of view of the entertainment industry. When you think about the entertainment industry, really over the past five to 10 years, there’s been a lot of changes in how entertainment is created, distributed, consumed, and monetized. Let’s just run through each of those real quickly.

From the creation point of view in this sector, you’ve always had very high costs and also the risk of having to generate enough new hits every year to be able to offset some of the things that are slowly tailing down and really offset a lot of the misses that you’re going to have every year as well. But now you also have to think about how artificial intelligence is going to impact content creation. To some degree, I think it’s going to make it a lot easier for people to create content at lower costs. If anything else, I think there’s going to be much more competition for maybe smaller upstarts than what we’ve had in the past. And of course, lots of different platforms to put that content out on. And with AI, too, you have the ability to make deepfakes, be able to create a lot of artificial intelligence content that we haven’t had in the past as well. Not necessarily sure how that’s going to impact the industry going forward.

How this content is distributed, I think to some degree the industry is still trying to figure out the right balance between having their own individual streaming platforms that they charge for, but still be able to have it on a lot of the bundling platforms like cable. What we’ve seen is the shift to streaming puts them in charge of their own content more and more, but it also has a lot higher cost to be able to distribute it, and it’s led to much thinner margins here in the short term.

As far as how content is consumed, if you have younger kids in your household, you’ll see there is a huge generational shift in how younger generations consume entertainment differently than what we’ve had in the past. I mean, a lot of my kids, they just don’t watch TV. And in fact, they spend their time on different platforms, whether it’s social media, watching TikTok, YouTube Shorts, Meta Reels, but a lot of things other than that traditional channel that you and I probably have spent more of our time on over the past couple of decades.

And then lastly, thinking about monetization and just thinking about how all this content is paid for is just under huge amounts of pressure as well. I mean, if you think about traditional TV ads, I don’t think they can really be worth all that much anymore. I mean, personally, the little bit of TV I watch, I’ll never watch them because we always record everything, and you’re able to skip through those traditional TV ads. And thinking about both traditional bundling and then now also the streaming platforms, each are getting squeezed because consumers are getting tapped out from either paying too much for cable because those rates keep going up and up. Or if you get rid of your cable and you’re trying to buy those individual platforms, it gets confusing because now you’ve got four or five different platforms that you’ve got to be able to scroll between to go and find something to watch. And you’re also kind of getting tired of having to pay all of those individual bills as well.

It all gets down to: I just don’t like those kinds of macro dynamics from a long-term investing point of view until we see some substantial differences in how this entertainment industry really looks going forward from here.

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