- Discovery and WarnerMedia’s merger has reignited speculation of industry-shaking media deals.
- Insider spoke with experts about how talks between media giants could play out in 2021.
- The pressure is on, and all eyes are on Comcast’s NBCUniversal as rival AT&T spins WarnerMedia.
- Visit Business Insider’s homepage for more stories.
This story was first published in January and was updated on May 19 with new reporting after Discovery and WarnerMedia announced merger plans.
WarnerMedia and Discovery’s $43 billion merger has Hollywood abuzz.
Media insiders are speculating about which companies might marry next, as they seek the scale and IP to compete in the streaming era.
Already, word has spread that Amazon is looking to buy MGM, as The Information first reported. Eyes are on Comcast’s NBCUniversal as the town’s next big buyer. And companies including Lionsgate, Sony Pictures Entertainment, and Legendary Pictures are being looked at as potential takeover targets.
“The marketplace for M&A transactions in the media space is coming to a roaring boil over the next 12 months,” Bill Simon, who leads the media and entertainment practice at management-consulting firm Korn Ferry, told Insider this week.
While there have been plenty of recent deals in the sector, a Hollywood deals executive said this week that the tone of the conversations was changing. There’s concern that some of the hottest targets are off the market, now that Discovery and WarnerMedia are combining, Viacom has merged with CBS, and Disney has Fox’s assets.
Insiders are looking to smaller and mid-sized companies like AMC, Lionsgate, Sony Pictures Entertainment, and Legendary Pictures.
“Legendary is being shopped,” the deals exec said. “It takes on new meaning, now you’re starting to worry about scarcity.”
Insider spoke with media bankers, consultants, and other experts about how talks between media giants could play out in 2021.
Legacy-media companies that recently bet on streaming to reach people who were abandoning traditional media, like Comcast and Disney, may take hard looks at how those efforts are faring, as media consultant Sebastian Blum, a partner at OC&C Strategy Consultants, told Insider in January.
Companies that deem their efforts promising may try to snap up troubled assets that could propel their streaming ambitions farther, such as content owners Lionsgate or AMC.
Read more: The 8 top media bankers from firms like LionTree and Goldman Sachs
Others, particularly those that have been on buying sprees in recent years, may try to unload assets that aren’t moving the needle or consider other combinations to get a new edge. That’s part of the rationale behind AT&T’s decision to shed satellite company DirecTV and spin off WarnerMedia into a merger with Discovery.
“Firms like Comcast and AT&T already dismantled everything that they could,” Blum said in January, referring to how the distributors snapped up media companies in the past. “They will think about what to do next. How do I get a critical mass of these people? What are the configurations that make sense? Is it time to change horses?”
Those conversations could create a boon for smaller content companies, production houses, animation shops, and other studios, leading to combos like Reese Witherspoon’s Hello Sunshine and Gwyneth Paltrow’s Goop.
Smaller companies like Will Smith’s production company Westbrook might also be an acquisition target as big operators look to scale up.
“You’re going to see the Disneys of the world, the HBO Maxes, the Peacocks, looking at all kinds of content fare, especially family and independently owned,” EisnerAmper’s Michael Breit, who runs the tax and advisory firm’s sports and entertainment group, said in January.
Comcast: all eyes are on NBCUniversal
Market capitalization as of May 19: $248 billion
Now that AT&T has made its move to spin out WarnerMedia, media insiders are wondering if Comcast will do the same with NBCUniversal.
NBCUniversal has been in a period of deep transformation, slashing headcount at traditional channels to make way for streaming investment at the Peacock network.
Wall Street prognosticator Rich Greenfield argued back in November that NBCU didn’t need to be part of a big distribution company and could merge with WarnerMedia. “We believe investors would be ecstatic over a combination,” he wrote then.
But that’s off the table now that Discovery has stepped in.
“Comcast has a real issue,” the Hollywood deals executive told Insider. “Now that AT&T split its assets, that’s going to turn the heat on Comcast to do the same thing. The market would probably like that.”
MGM: could sell to tech giant Amazon
The studio behind James Bond could be the next big acquisition target in the media sector.
Amazon is in talks to acquire MGM for $9 billion, Variety reported on Monday.
Mike Hopkins, the senior vice president of Amazon Studios and Prime Video, is said to be orchestrating the deal directly with MGM’s board chairman, Kevin Ulrich, according to the Variety report.
MGM had been exploring a sale since at least December, as The Wall Street Journal reported.
And a sale to Amazon could signal that the tech company wants to beef up its Prime Video library with MGM’s extensive film catalog. It owns franchises including James Bond, Hobbit, Rocky, and Pink Panther as well as “Legally Blonde” and “A Star Is Born.” MGM, which makes TV shows including “The Handmaid’s Tale,” could also help bolster Amazon’s studio business that makes original content for Prime Video and IMDB TV.
ViacomCBS: could make a play for Lionsgate or another studio
Market capitalization as of May 19: $26 billion
When Viacom finally came together with CBS, word was controlling shareholder Shari Redstone would acquire something big. Redstone ended up taking a piece of Miramax, leading some to think MGM and Lionsgate are likely targets.
Maybe now, with Amazon vying for MGM, Lionsgate or a company like AMC Networks would have more impetus to join forces with the self-described programming “arms dealers” of streaming.
ViacomCBS stock had a rough ride in 2020, when it was trading in the twenties, down from its current price of around $40. The only way is up in 2021 as the company focuses on its newly rebranded streaming service Paramount Plus and continues selling shows to rival streamers.
The company sold CNET and publishing company Simon & Schuster in 2020 and tried to offload its headquarters, known as Black Rock. Black Rock will likely be on the block again this year, and ViacomCBS could decided it has other non-core assets to shed.
ViacomCBS is now so small versus the rest of the media universe that it could become a target itself, with potential buyers like Amazon, which looked at CBS’s books before the merger.
Few think Redstone is in any mood to relinquish her mogul status just yet, however.
Sony Corp.: could buy an entertainment company or exit the studio business
Market capitalization as of May 19: $117 billion
Sony Corporation of America has long been the crown jewel of Japan’s tech giant Sony, and as such is viewed as an acquisition target by other media and tech giants.
The company houses a movie studio, gaming unit, TV assets, and a giant music business, which may suddenly look more valuable as rival Universal Music comes to the public market in 2022.
In early 2020, Sony acquired Insomniac Games for $229 million, and could be on the hunt again if WarnerMedia decides to sell its games unit.
Under the leadership of Tony Vinciquerra, Sony Pictures Entertainment may also decide it wants to expand its movie franchise with a company like MGM, which is considering a sale. It’d face stiff competition from tech giant Amazon, however, which Variety reported is weeks into talks to buy MGM.
If history is a guide, Sony won’t sell its media assets and is unlikely to join other conglomerates in doing day and date releases via streaming.
Lionsgate, Legendary, and Village Roadshow: possible takeover targets
Lionsgate is another film and TV company that has long been rumored to be a takeover target.
It has an ample library of movies and TV shows, including the Hunger Games, John Wick, and Rambo franchises. But, with a market cap of $3.4 billion, it may be too small to survive on its own at a time when major media companies are going direct-to-consumer and pushing their in-house properties.
Lionsgate made overtures starting last year to ViacomCBS to acquire its premium pay-TV company Showtime, as Insider reported.
It was rejected. But it shows Lionsgate has an appetite for an acquisition, perhaps to attract larger offers from suitors than it’s fielding today.
As media conglomerates run out of targets, a company like Wanda Group’s Legendary Pictures, which Reuters reported had been open to sale, could also become a more attractive buy. The same goes for a major independent producer, such as PE-backed Village Roadshow, which is run by Steve Mosko, the former Sony Pictures TV Chairman.
Firms focused on live-entertainment could gobble up venues and clubs
Live-entertainment has been stymied by lockdowns for the past year, but the industry is hoping for a “Roaring 20s”-style boom when things reopen.
Breit at EisnerAmper said he expects a range of companies such as Live Nation, James Dolan’s MSG Entertainment, and SPACs, to snap up venues, music clubs, and other live-event spaces, in anticipation of an explosion of live-entertainment in the second half of year.
In March, MSG Entertainment and MSG Networks announced plans to reunite, in part to tap into the growing opportunity around sports betting, for example.
For those looking to bet that consumer habits have changed and that going out is still a risky business, the growth of online celebrity platforms such as Cameo, Patreon, and StageIt might prove a worthy investment.
SPACs: on the hunt for media companies
Special Purpose Acquisition Companies are proliferating, and everyone wants to run one or get in on the gold rush by accessing the cash.
BuzzFeed’s Jonah Peretti and Group Nine’s Ben Lerer are each forming their own to take advantage of less stringent rules than traditional IPOs. Their aggressive moves leave media watchers wondering if Vice Media’s Nancy Dubuc will follow suit and fulfill cofounder Shane Smith’s longtime hope of taking the company public.
SPACs rely on investors trusting strong management teams to identify assets that might perform better with more access to cash.
Former Disney chief Kevin Mayer, Tom Staggs, and Shaquille O’Neal raised $300 million for their venture, while former Goldman Sachs alum Gerry Cardinale is hoping to acquire sports data firms through a SPAC created by his company’s RedBird Capital to capitalize on what will be a hot sector in 2021.
Last week, former Dick Clark Productions’ chief executive Michael Mahan launched Bright Lights Acquisition.
Whether there are enough enthusiasts to go around remains to be seen. Skeptics think we’re headed for Tulip mania circa 1637.
AT&T: could spin out Turner, DirecTV, or other assets
Market capitalization as of May 19: $207.5 billion
AT&T looks to have placed its big bets for the year.
The telecom in February struck a deal with private equity firm TPG to spin off video businesses DirecTV, AT&T TV, and U-Verse. It announced in May its plans to spin off WarnerMedia into a combination with Discovery.
AT&T is spinning off both businesses for fractions of what it paid to acquire them. But AT&T shareholders will own around 70% of the shares in each new company.
Some analysts still think Turner assets including CNN, TNT, TBS, Cartoon Network, and truTV would do better on their own than as part of WarnerMedia.
“We continue to view the sale of the Turner assets as a better option for AT&T, given they may be worth $40 billion to$45 billion,” Bloomberg Intelligence analysts wrote on May 16. “AT&T could use the proceeds to fund its 5G and fiber build-out, which are both strategic priorities, and pay down debt.”
But the Turner assets are tightly integrated with the rest of the company and would be tricky to separate.
Plus, Discovery CEO David Zaslav, who will lead the combined company after the merger, likes Turner’s news and sports businesses and thinks they could be a big draw for advertisers when combined with Discovery’s lifestyle brands like HGTV and Food Network.
“It’s just the combination of us reaching about 20% viewers in America at any given day, the leader for women,” Zaslav said during an investor call this week. “You put that together with the leader for news, leader in sports, all the entertainment content, this is aside from HBO. It gives us a chance to be a wonderful partner to advertisers.”
Discovery: focused on integrating with WarnerMedia
Market capitalization as of May 19: $16 billion
Discovery is going from a sub-scale network group to a potentially major streaming competitor through its merger with WarnerMedia.
The deal opens the door for the two companies to bundle their streaming services, Discovery+ and HBO Max, integrate each other’s content, and boost their production capabilities.
Before the deal, Discovery had been positioning itself as a buyer. Discovery had talks with Italian media company Mediaset SpA for a potential partnership, for instance, as a French news outlet reported in September.
And, indeed, it was Zaslav who approached AT&T CEO John Stankey about the deal with WarnerMedia.
But, integrating Discovery’s assets with WarnerMedia will likely keep Zaslav, who will helm the combined company, busy enough this year. The companies expect the deal to close in the middle of next year.
Disney: could unload assets that aren't moving the streaming needle
Market capitalization as of May 19: $305 billion
Some still think Disney could try to sell off its non-DTC assets like its news and sports properties, now that its namesake streaming service has momentum.
One of the most speculated moves had been a spin of cable giant ESPN to existing Disney shareholders.
But, Disney has been leveraging ESPN alongside broadcaster ABC and its sports streaming service ESPN+ in rights negotiations, and the strategy seems to be paying off. Its latest deal with the NFL puts ABC in rotation for the Super Bowl, keeps Monday Night Football on ESPN, and brings the Monday night games to ESPN+.
ESPN’s streaming transition hasn’t been the rocketship Disney+ has. ESPN+ has 13.8 million subscribers, compared with 103.6 million for Disney+.
Still, ESPN+ has grown heartily in the last year, increasing its subscriber base by 75% and boosting its average monthly revenue to $4.55 per paid subscriber with the help of pay-per-view UFC events.
And ESPN’s audience of sports fans is still attractive to Disney investors, and its sports rights and programming are key to the company’s streaming expansion plans in Latin America.
All this makes Disney less likely to part with the sports network this year.
One highly placed source notes that the Street has not punished Disney for all the parts that aren’t working, such as theme parks and the inevitable decline of its traditional TV business, and so all chief executive Bob Chapek needs to do is keep pedaling and he can keep it all together, if he chooses.
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