Top Five Distressed US Industries

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1 January April Top Follow Five on Distressed head on Master US Industries page A April 2017 By Jon DeCarlo, Darshan Kalyani, Kelsey Oliver and Iris Peters All five of these industries have experienced enterprise declines as smaller operators are forced to exit the industry due to lack of profitability A growing online presence, volatile commodity costs and trade patterns have significantly influenced these industries A growing online presence, volatile commodity costs and trade patterns have influenced the following five industries significantly. The industries are ranked by the quickest expected industry value added (IVA) declines, which measures the industry s contribution to the US economy, curated using IBISWorld s proprietary database. In addition to IVA deteriorations, all five of these industries have experienced enterprise declines, as larger operators engage in mergers or acquisitions to remain competitive and smaller operators are forced to exit the industry due to lack of profitability. The DVD, Game and Video Rental industry ( ): -15.8% The DVD, Game and Video Rental industry is engaged in renting physical copies of movies, computer and video games and other discs for home entertainment. Over the five years to 2017, industry revenue has steadily contracted at a staggering annualized rate of 6.9%. Successive quarters of weak performance for industry operators can be attributed to increasing reliance on digital outlets such as Netflix, Hulu, Amazon, Comcast and other digital media services, including pirated content. For example, Redbox s % change DVD & Game Rental industry revenue Year total rentals were down 18.1% in 2016 compared with the previous year (latest data available). Similarly, Netflix domestic DVD-by-mail membership services dropped 13.2% in 2016, while the company s number of streaming memberships grew 15.1% over the same year. In 2017, IBISWorld expects streaming services to decrease industry revenue 2.2%, compared with a 0.6% decline in revenue in This drop is fundamentally owing to the percentage of services conducted online increasing an annualized 13.4% over the five years to 2017, according to IBISWorld forecasts. As consumers continue to turn to streaming subscription services, 17 SOURCE: info@ibisworld.com

2 April major industry companies, namely Redbox and Netflix (domestic DVD-bymail services only), are expected to post hefty losses in fiscal In addition to the continuing trends of industry consolidation and store closures, IVA is expected to decline at a sharp annualized rate of 15.8% over the five years to Enterprises, following suit, are forecast to decline an annualized 13.8% during the same period. Unable to compete with shifting consumer preferences and an increasingly competitive landscape, industry operators are expected to continue exiting the industry. Gold and Silver Ore Mining industry ( ): -16.5% Revenue for the Gold and Silver Ore Mining industry has contracted over the past five years due to decreasing output volumes and falling gold and silver prices. As a result, IVA is forecast to decline at an annualized rate of 16.5% over the five years to Moreover, industry revenue is expected to decline an annualized 7.3% to total $9.9 billion during the same period. Production volume and gold prices are key drivers of industry performance. In 2017, gold mining is expected to account for over 90.0% of industry revenue. In times of economic turmoil, investors look to buy safe-haven assets such as gold and silver, causing industry revenue to surge. However, as the broader economy has recovered and financial markets have rebounded over the past five years, investors have decreased their appetite for gold and silver products, leading to a decrease in mining activity and precious metals prices. According to data from the United States Geological Survey (USGS), the price of gold has declined 24.0% in 2016 compared with the record-high price in Additionally, profitability for industry operators has declined substantially, causing companies to divest in noncore and low-yield assets to stay viable. Due to uncertain policy positions in the United States, tense geopolitical situations in several countries and anemic growth worldwide, industry revenue is expected to grow in These factors are expected to attract investors to safe-haven investments (e.g. gold), benefiting the Gold and Silver Ore Mining industry. Cotton Farming industry ( ): -12.5% Industry operators in the Cotton Farming industry grow cotton that is typically used in textile manufacturing. Over the five years to 2017, IVA is expected to decline at an annualized rate of 12.5%, while revenue is forecast to fall 9.0% during the same period. Performance in this industry is extremely sensitive to international trade. Consequently, unfavorable exchange rates and overseas competition have hurt industry demand. When the US dollar appreciates, it makes domestic goods more expensive to international markets, and therefore, less desirable. Additionally, the world market is saturated with suppliers and an increase in cotton volumes from competitive markets reduces demand for, as well as the price of, US-grown cotton. Industry profit margins have also declined over the past five years due to the declining price in cotton, as well as record-high stockpiles and declining government assistance. As a result, the number of acres planted has also decreased during the period, and in turn, industry operators have been forced to exit the industry. IBISWorld expects the number of enterprises to decrease at an annualized rate of 10.6%, including a 20.0% decline in 2017 alone.

3 April The Camera Stores industry ( ): -7.9% The Camera Stores industry comprises brick-and-mortar camera stores that sell cameras, lighting equipment, tripods, film and other camera accessories. Demand for this industry has thinned significantly over the past five years, largely due to heightened competition from online retailers, department stores and consumer electronic stores. Due to their size, these stores often have greater purchasing power than small specialty shops such as camera stores, hurting industry demand. As a result, IVA is expected to decline at an annualized rate of 7.9% over the five years to Changing consumer preferences have also rendered many of the products sold by this industry obsolete. The prevalence of digital cameras has mitigated demand for analog cameras and high-margin accessories. Moreover, increased camera phone technology has encouraged consumers to opt for a single device with a built-in camera, as opposed to two separate devices, which decreases demand for industry products. As a result, industry revenue is projected to decline at an annualized rate of 7.2% over the five years to 2017, which includes a 4.9% drop in 2017 alone. Competition from external retailers has also led to enterprise contraction. Larger retailers are able to sell higher volumes at lower prices, which negates the need for camera stores. Moreover, larger-format stores experience lower per-unit overhead costs, which allows them to maintain favorable returns. This puts pressure on industry profit margins, which has forced many companies to exit the industry. As a result, IBISWorld expects the number of industry operators to decline at an annualized rate of 4.8% over the five years to $ billion Database & Directory Publishing in the US revenue Year The Database and Directory Publishing industry ( ): -10.0% The Database and Directory Publishing industry includes enterprises that publish organized compilations of information or facts. Industry operators produce several products, including directories, such as yellow and white pages, databases and mailing lists. Consumers reliance on the internet to retrieve information has continued to grow over the past five years. As the industry generates the majority of its revenue from the sale of advertisement space in printed publications, businesses decreased propensity to spend on print advertisements has adversely impacted the industry. In response, database and directory publishers have invested heavily in their digital presence to benefit from a rapidly growing digital advertising market. However, the industry has experienced intense competition for digital advertising spending. Competitors include well-established and popular online search engines, such as Google, and social media platforms, like Facebook. Over the five years to 2017, industry revenue is expected to fall at an annualized rate of 6.5% to $7.9 billion, which includes an anticipated decline of 17 SOURCE:

4 April About IBISWorld Inc. Recognized as the nation s most trusted independent source of industry and market research, IBISWorld offers a comprehensive database of unique information and analysis on every US industry. With an extensive online portfolio, valued for its depth and scope, the company equips clients with the insight necessary to make better business decisions. Headquartered in Los Angeles, IBISWorld serves a range of business, professional service and government organizations through more than 10 locations worldwide. For more information, visit or call % in 2017 alone. Additionally, industry profitability is also expected to decline during the period. To increase their attractiveness, industry operators have slashed digital advertising space selling prices, cutting into their margins. Due to declining profitability, IBISWorld expects industry IVA to decline at an annualized rate of 10.0% during the five-year period. In response to declining profitability, the industry has undergone significant restructuring to minimize costs. Larger companies have participated in mergers and acquisitions to remain competitive. Smaller industry operators that have not been able to implement such high-profile spinoffs and mergers have struggled to diversify their product offerings and lower costs. As a result, the number of industry operators is expected to decline at an annualized rate of 7.9% to 2,754 companies over the five years to Contact: Media Relations media@ibisworld.com IBISWorld Sales & Subscriptions Phone:

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