U.S. media stocks dip following China market rout

U.S. media stocks declined on the first trading day of 2016 amid broader market concerns over the Chinese economy that hammered Wall Street.

Shares of major media and entertainment firms such as the Walt Disney Co., Viacom Inc. and 21st Century Fox Inc. fell 2% to 3% in midday trading Monday, as both the Dow Jones industrial average and the Standard & Poor’s 500 slid more than 2%. The Nasdaq saw similar declines.

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Walt Disney Co. shares declined $3.18, or about 3%, while Fox’s stock dipped 75 cents, or 2.8%. Viacom, the owner of MTV, Comedy Central and movie studio Paramount Pictures, slipped about 2.3%.

The U.S. market plunge came in the wake of an overnight sell-off in China, triggered by fears of a weakening global economy. The decline of a purchasing managers index for China released over the weekend helped fuel a nearly 7% drop in that nation’s benchmark Shanghai composite index on Monday.

China has become increasingly important to Hollywood companies as that country’s film business continues to boom. The 2015 box-office in China, the world’s second largest film market, grew nearly 50% to $6.8 billion last year. Nonetheless, analysts do not expect China’s market turmoil to slow the rapid growth of the movie business there.

Media stocks faced pressure last year due to signs that consumers are abandoning traditional cable subscriptions faster than anticipated. So-called cord-cutting, the practice of ditching cable for more flexible online options, has long weighed on the sector.

Compounding the issues for media stocks were a pair of analyst downgrades for DreamWorks Animation and Netflix.

DreamWorks’ shares dropped 7% after B. Riley analyst Eric Wold downgraded the Glendale-based company to a “neutral” rating from “buy,” saying the expected strong box office from the upcoming “Kung Fu Panda 3” has already been priced into the shares.

Netflix fell more than 6% after the investment firm Baird lowered its price target for the Los Gatos streaming video company and downgraded its stock to “neutral.” Netflix was the S&P 500’s biggest gainer of 2015, up 134% for the year.

Follow Ryan Faughnder on Twitter for more entertainment business coverage: @rfaughnder

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