David Zaslav at the Allen & Company Sun Valley Conference on July 9, 2024 in Sun Valley, Idaho.
David Grogan | CNBC
Comcast Chief Executive Brian Roberts sent a not-so-subtle message to the company this week: Warner Bros. Discovery CEO David Zaslav: If you sell, I won’t buy.
“We are not involved in the process of acquiring content companies and are primarily focused on organic opportunities such as the NBA,” Roberts said during the conference call on Tuesday. Comcast second quarter earnings telephone conference.
If you ask Zaslav, though, the reason Roberts and other potential buyers of media assets aren’t interested is because the administration has scared them away.
Zaslav publicly addressed a theme earlier this month that many senior media executives have said privately for years: The current U.S. administration is blocking deals and business leaders are eager for the next U.S. president to bring more mergers and acquisitions.
“We just need an opportunity to deregulate so companies can consolidate and do better,” Zaslav told reporters at Allen & Co.’s annual Sun Valley conference.
Roberts’s indifference and Zaslav’s lament shed light on a fundamental question that could determine the future of the media and entertainment industry: Whether the largest media and technology companies want to acquire the content of smaller rivals, but are too regulated to do so. , or are they just not interested in the asset?
Exhibit A: Several months period Paramount Worldwide During sale talks, controlling shareholder Shari Redstone approached dozens of potential buyers before striking a deal with Skydance Media, a relatively small studio that earlier this month Agreed to buy a controlling stake in Paramount but not the entire company.
Shari Redstone attends the Allen & Company Sun Valley Conference on July 10, 2024 in Sun Valley, Idaho.
David Grogan | CNBC
Redstone has shown little interest among major media and technology companies, which could use his company’s film and television studios and libraries to support their own streaming services, according to people familiar with the matter. The sale process proved that the largest media and technology companies didn’t want Paramount.
Other companies, including Starz, AMC Networks and Vice Media, also looked for deep-pocketed buyers but found none.
Rob Kindler, global chairman of mergers and acquisitions at law firm Paul, Weiss, said there are two possible explanations for the lack of interest from large media and technology companies.
“Either they don’t want the assets, or they think the regulatory hurdles are too high,” Kindler said.
The push for deregulation will bring clarity to the media industry. Tech and the largest entertainment companies may have given up on targeting important media assets as acquisition targets, given the government’s red tape over antitrust, national security and outdated communications rules.
Or maybe legacy media companies are simply unpopular assets.
Success or failure
Zaslav’s perspective stems from his own experience. He merged his previous company, Discovery Communications, with AT&T’s WarnerMedia in 2022, extending that company’s life and possibly his own tenure running a media company. content providers and owners of declining cable television networks.
Now, Zaslav sees the same dynamic repeating itself with Warner Bros. Discovery Channel, whose shares have fallen 36% in the past year as the company focuses on turning its flagship streaming service Max into Global Profitable Business and grapple with the possibility of Loss of NBA media rights After nearly 40 years as a partner.
One approach is to find an acquirer valued in the trillions of dollars to help pay for expensive content, e.g. Amazon, apple or Google. Zaslav could also merge Warner Bros. Discovery with another traditional media company, such as Paramount Worldwide, fox or disneyOr NBCUniversal (if it were spun off from Comcast).
Zaslav’s vision of media deregulation—that looser access essentially means more big-money deals—is a matter of life and death for traditional media.
David Zaslav at the Allen & Company Sun Valley Conference on July 9, 2024 in Sun Valley, Idaho.
David Grogan | CNBC
His position, according to a person familiar with his thinking, is that consolidation is the only way forward not just for his own company but for all traditional media companies besides Apple, Google and Amazon.
His message could be persuasive to politicians who want to save local news and suppress the power of Big Tech. If the world’s largest companies invest tens of billions of dollars in the rights to broadcast the most popular sports events, it’s possible, if not unlikely, that the traditional media industry will slowly succumb to obscurity.
Accordingly, Warner Bros. Discovery is seeking to sue the NBA in a last-ditch effort to maintain the company’s status as a platform for live games after the league chose Amazon, which has deep pockets and scale, as its broadcast platform. Selected partners.
Zaslav declined to comment for this story.
poor record
The problem for Zaslav is that while big media mergers may keep the industry competitive, they are not winners for shareholders. There have been some big media deals in recent years that ended badly.
In 2018, Zaslav’s Discovery completed the acquisition of Scripps Networks Interactive for $14.6 billion. three months laterAT&T Completed the $85.4 billion acquisition of Time Warner.
In 2022, the combined Discovery-Scripps merged with WarnerMedia Evaluation Corporation $43 billion.
Today, Warner Bros. Discovery’s total market capitalization is approximately $20 billion. Various mergers have saddled the company with about $40 billion in debt.
Other big media deals haven’t fared much better. Viacom and CBS merged in 2019, with the combined company valued at Approximately US$30 billion. Paramount Worldwide (the new name of the combined company) currently has a market capitalization of approximately $7 billion.
disney got most of fox’s Asset value in 2019 was $71 billion. Disney’s current market capitalization is lower than it was when the deal closed.
As an offshoot of the Disney-Fox deal, Comcast Acquire Sky for $39 billion. This also seems like a serious overpayment. Comcast Writedown of $8.6 billion Sky value in 2022.
Kindler said that while it was clear that none of these mergers turned out to be winners, it was only fair to judge them by comparing them to what would have happened if the companies had remained independent.
“While many of these trades don’t seem to be working out well, what would have happened if they hadn’t made those trades? That’s the real question,” Kindler said.
Not many small media and entertainment companies have tried a go-it-alone strategy in recent years, but of those that have tried (or done so because they couldn’t find a buyer), the results have been tough for shareholders. shares AMC Network, Owners of cable television networks, including AMC, International Finance Corporation, our tvand sundancetvdown about 80% in the past five years. Lionsgate The stock price fell more than 35% during the same period.
this S&P 500 Index It rose 81% over the same period.
Ambiguous regulatory environment
Kindler said there was no doubt that senior executives were worried that regulators might block deals that might otherwise have made it through the approval process.
“Twenty years ago, the first call people made when they made a trade was to their banker to see if it made financial sense. Now, the first call is always to a lawyer,” said Kim, a former global chairman of JPMorgan Chase. Dele said. “It completely changes because the first question everyone asks is what are the regulatory impacts.”
What is less clear is whether there will be significant divisions between Republican or Democratic administrations in 2024 and beyond. While former President Trump’s Justice Department allowed Disney to acquire Fox with limited resistance, his administration sued to block AT&T’s acquisition of Time Warner.
President Joe Biden’s administration has also had mixed results. A federal judge freezes $2.2 billion Simon & Schuster for sale Last year, Amazon applied to Penguin Random House on antitrust grounds, but its $8.5 billion acquisition of MGM was approved.
Adding to the confusion, Trump’s vice presidential nominee J.D. Vance has publicly stated that he largely supports Federal Trade Commission Chair Lena Khan’s aggressive rhetoric on limiting corporate power through mergers.
“I think Lena Khan is one of the few people in the Biden administration who is doing a good job, and that sets me apart from most of my Republican colleagues,” Vance said. earlier this year RemedyFest, a discussion forum on regulatory challenges. “You want to promote as much competition as possible, and you actually want to separate all of these vertical markets as much as possible. That’s where I think antitrust is probably the most useful way to think about solving the problems we face.”
Kamala Harris, now the de facto Democratic presidential candidate, is likely to field questions from the business community about her regulatory philosophy in the coming months.
Even if Zaslav is right and trading volumes decline due to regulatory concerns, “it’s unclear whether significant changes will occur under the new president,” Kindler said.
bark more than bite
Mark Boidman, global head of media at Solomon Partners, said Zaslav’s view that regulatory concerns are holding back consolidation may be based more on fear than reality.
“While we recognize that the regulatory environment has changed, we are still seeing both small and large deals across the media industry,” Boydman said. “Despite increased regulatory scrutiny, deals are still being completed across the media sector. “
Boidman noted that despite Khan’s aggressive FTC rhetoric, the number of enforcement actions leading to merger parties abandoning or restructuring deals has not increased, citing 2022 FTC data showing that only 1.5% of merger deals that year experienced regulatory changes or failure to complete issues . This is lower than the 2.6% average over the past 10 years.
From September 30, 2022, to September 30, 2023, federal agencies challenged only 17 transactions — the lowest number of merger enforcement actions in the past 20 years. according to Law Firm of Covington & Burling.
Still, the volume of completed deals, measured in dollar value, dropped significantly when isolating just for media deals, illustrating a slowdown in larger deals. Media deals totaled $51 billion last year and $35 billion in 2022, well below the $85 billion median seven years ago, according to Dealogic.
This looks set to continue, with just $22 billion in media deals announced so far in 2024.
Additionally, judging a deal simply based on whether it ultimately gets approved may not be the best metric. Traditional media companies may be deterred from trying transformational deals because approval times are too long. Skydance Media and Paramount Worldwide speculate their merger will be approved September 2025More than a year after the deal was announced. The long lag time leaves both acquirers and sellers in an unhealthy state of paralysis, unable to fully plan for the future together.
—CNBC’s Lillian Rizzo contributed to this report.
