February 1, 2023

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Great merger of media and entertainment is expected on Wall Street

5 min read

Falling stock prices, indebted balance sheets, increased competition and a new focus on profitability put investors in the crosshairs of the next great media-entertainment merger on Wall Street.

Investors on Wall Street, media and entertainment companies are waiting and considering what a possible merger will be because their stock prices have fallen, they have debt balance sheets, competition is increasing and they have put a new focus on the cost effectiveness. It’s a pretty good turning point, now investors need these services to be profitable, say some investors in the medium, adding “We are entering chapter two of the streaming wars.” “Only time will tell, but I think everything is on the table to try to improve profitability and make platforms more creative for your overall business.”

According to the biannual report U.S. In PwC’s Deals Outlook, media and telecom deal volumes and values slowed in 2022 compared to last year’s record.

There were 3,772 deals in the past 12 months ending in November, a 26% year-over-year decrease, with an announced deal value of $624 billion, a drop of 18% compared to 2021.
The firm attributed the slowdown to higher interest rates and inflation, along with rising geopolitical tensions and regulatory oversight.

The current FTC antitrust lawsuit against Microsoft and its $69 billion acquisition of “Call of Duty” publisher Activision Blizz and Paramount’s blocked sale of Simon and Schuster serve as the most recent examples of this regulatory environment. more combative.

Elon Musk’s $44 billion acquisition of Twitter, along with the deal between Microsoft and Activision, were the biggest announcements in the media and telecommunications space this year.
Regardless of whether they closed or not, the report included all deals announced in 2022. Amazon’s $8.5 billion acquisition of MGM and WarnerMedia’s $43 billion merger with Discovery did not count toward this total. year, since they were announced before 2022.

Amid this changing scenario, media executives have raised merger and consolidation possibilities.
Recently during a UBS press conference earlier this month, Paramount CEO Bob Bakish revealed: “Consolidation has been the rule in business for a long time, it’s certainly been the rule in the media. So , it is difficult for me to bet on anything other than consolidation in the future.”

As the cost of content continues to skyrocket, streaming losses have increased in recent years.
Walt Disney’s direct-to-consumer division lost more than $4 billion in its 2022 fiscal year, which ended Oct. 1, while Paramount’s guided streaming losses would total around $1.8 billion this year, more than Wall Street expectations.

Amid its messy restructuring efforts Warner Bros. Discovery, which has cut its market capitalization in half, reported free cash flow of negative $192 million in the third quarter, compared with $705 million for the year former. The company now plans to take on $3.5 billion in content impairment and development cancellations by 2024.

As WBD struggles to find direction, many industry insiders believe the embattled company will sell again, making it a potential acquisition target in 2023 and beyond.
Another target for sale will be the Lionsgate TV and movie studio, which the entertainment giant plans to spin off into a separate company, while AMC Networks Rg-A continues to undergo a restructuring that could result in a sale.

Paramount could be attractive to download, while smaller players like WWE, Curiosity Stream, and Chicken Soup for the Soul will likely sell due to their size.
Bob Iger, the CEO of Disney, will also face a number of decisions, including what to do with notable assets like Hulu (sell it to Comcast?) and ESPN (spin it off?).

Said Mary Ann Halford, partner at Altman Solon “There will definitely be assets for sale in the market.” “The bigger question is: What do we see coming out of the big media companies? And we’ve also seen that the tech giants have been pretty slow to get their hands on these assets.”
Tech giant Amazon, meanwhile, CEO Andy Jassy said in an interview at The New York Times Dealbook summit last month: “I think over time we will have opportunities to make our Prime Video business a standalone business with an economics very atractive”.

“Customers would like to go to one place and find everything they’re looking for, they don’t want to go to 5 or 6 different places,” Jassy said.

 

What will drive mergers and acquisitions?

Demand for live sports, including sports-adjacent industries such as sports betting, is likely to drive future M&A activity, PwC noted.

Said Qvest’s Christian “There’s a lot of money in sports, and bringing live sports to streaming platforms is an area that’s not yet fully exploited,” “The question there is: Can they put a pencil on it? Because the price is very high for the content. Will they now be able to get the subscribers needed to be profitable in that business?”

Spiegel agreed that rising content costs will likely put pressure on future trading, although more disciplined content spending could force platforms to partner to offset production risks.
Other M&A opportunities could revolve around movie theaters, as box office ticket sales struggle to reach pre-pandemic levels, and video games, which provide lucrative monetization opportunities through intellectual property. (PI) of franchises.

Spiegel argued, citing profitability concerns, “Many of these media companies rely on their existing IP to monetize in the marketplace across geographies and windows, rather than invest heavily and create a new IP,” “The most The traditional ones have that IP and they also have the engines and technologies that help in the content creation process.”
Overall, though, the biggest M&A opportunity will be content, especially as consumers become more selective with their subscription plans.

Added Spiegel, “Content and IP will always be attractive, because there’s not only the direct ability to monetize that existing content, IP, or library, but also tangential opportunities to monetize through sequels or other types of stories.”
“You can watch so many different things, but you need to have quality content,” added Christian. “Content is always going to be king.”

 

It’s a tough world for funding

PwC forecast a negative impact on valuations as recession concerns weigh on investor sentiment heading into the new year.

Added Spiegel, “It’s a tough world for funding, so private equity is more on the sidelines at the moment.”

“There is likely to be a gap between what sellers expect to value their properties and what buyers are willing to pay, because you have a small buyer pool and access to financing is much more expensive,” Spiegel said. . “Still, I expect private equity to come back – they are sitting in a significant amount of dry dust, but we just have to wait for the markets to come back in their favor.”

Higher interest rates will fuel macro challenges after the Federal Reserve delivered its seventh and final interest rate hike of 2022 to investors, Altman Solon’s Halford added.

“When people are looking to buy something with equity and debt, the interest rate environment is definitely a headwind,” Halford said.

Still, Halford said there will still be assets for sale next year, even with these challenges: “Wall Street is going to be after these companies.”

Posted by Iraic.info, news and information agency.

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