A food chain is defined as a hierarchical series of organisms dependent on the next as a source of food. This suggests that the entropy of the unchecked wild is merely instinctual, natural order masquerading as chaos. Sharks eat minnows, lions eat gazelle, and the whole world keeps on turning. We understand that the natural world is governed by such linear survivalism, but rarely do we acknowledge that the unnatural world we created—the one of business and economics—is also dictated by the same Darwinian laws.
The strong prey on the weak, or, at the very least, eye every conceivable opportunity to grow stronger—even at a cost to others. In the media and entertainment landscape, this is regularly accomplished through mergers and acquisitions. AT&T acquired Time Warner in a landmark $85 billion deal; The Walt Disney Co. gobbled up 20th Century Fox for $71 billion; Comcast dropped $39 billion on Sky; and Viacom and CBS re-merged to form a new company valued at roughly $30 billion. Scale in media is purely carnivorous—one company feeds on another. It’s almost Shakespearean in its lethal simplicity.
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While major dominoes have already fallen, there is undoubtedly more still to come. A tiger can’t change his stripes, after all, and the increasingly volatile entertainment media industry can’t be satiated in a time of conglomerate hunger. So we talked to a handful of industry experts in an attempt to identify realistic potential mergers and acquisitions on the horizon.
Mary Ann Halford, a former Fox EVP and senior advisor at OC&C Strategy
Halford believes the first question to tackle under this umbrella topic is identifying the major players who are still left in media and entertainment. To her, that list that includes AMC, Discovery, Lionsgate, Sony, Imagine Entertainment and MGM Entertainment.
“Of course, regarding Discovery and Lionsgate, Liberty Media (controlled by John Malone) has a significant interest, which could make for interesting dealmaking,” Halford said.
Steve Birenberg, Founder of Northlake Capital Management
An expert in the financial field, Birenberg is eying Lionsgate for an acquisition. “I’m not exactly sure by whom,” he says, “but ViacomCBS makes the most sense if and when they prove their merger is working and their stock prices is way, way up from here.”
Despite ongoing speculation throughout the industry, Birenberg does not believe Apple will acquire a studio as he doesn’t deem it necessary to further their product services priority. “If Apple were to acquire anything, I think Roku would be the smart move,” he noted.
Similar to others quoted here, he views Discovery Communications as a prime target, thanks to its high floor non-fiction strategy and healthy balance sheet. While no obvious partner comes immediately to mind, there are non-traditional alternatives that Discovery’s unscripted content lends itself to.
Paul Dergarabedian, Senior Media Analyst for Comscore
Dergarabedian believes we are witnessing the greatest amount up upheaval in the media industry’s history. “From a practical perspective—because there is so much content that it can be overwhelming—the future may revolve around consolidation,” he says. The question on his mind is: “How do we get all of this content in one place?”
Outside of Roku and Apple TV housing streaming apps for several services, the competitors are not concerned with making it easy for consumers to access a wealth of content. The sheer volume of options may be the primary barrier of adoption for some.
“Future merges will be dictated by technology with unexpected players that may not even exist yet driving the industry,” he predicts. “We need to open our minds to the intersection of technology and content. Sony was a tech-first company when they acquired Columbia Pictures; Netflix began by selling DVDs and is now a full-blown studio. If we travel 20 to 30 years back, we couldn’t have envisioned the entertainment industry of today with streaming and everything. So the future will likely be a manifestation of what we’re not even aware of yet.”
Mark Williams, Chief Revenue Officer, Americas, for Merrill Corporation
Williams notes that merger and acquisition deal-making in the technology, media and telecom (TMT) sector remains healthy, with $324.2 billion in 2018 and growth expected to continue in 2019 and beyond. “As we discussed in our recent Technology, Media, and Telecommunications (TMT) M&A Spotlight panel, this is a result of technology being so embedded in the business world, that the M&A opportunity lies not within technology or a specific industry, but at the intersection of them both,” he said.
Based on discussions from Merrill’s (TMT) M&A Spotlight panel, interactive content such as video gaming may provide the greatest growth potential within TMT moving forward. This lane is expected to emerge as a “long-term catalyst for M&A deal-making,” Williams explains.
“Gaming has evolved, becoming very social, multi-player, and online driven. This shift can be attributed to technology itself. People tend to start playing video games on their mobile devices, and in time, as players become more committed to gaming, they often subscribe to cloud-based platforms.”
Dock David Treece, Senior Financial Analyst at FitSmallBusiness.com
On Disney’s earnings call earlier this month, CEO Bob Iger said the company was not looking to add any major pieces following the acquisitions of Pixar, Marvel, Lucasfilm and 20th Century Fox over the last 15 years. But how long will this stance hold, especially with Iger stepping down in 2021?
“It makes sense that Disney would slow down merger and acquisition activity in the near future as it tries to absorb Fox, but this break will likely only be temporary,” Treece said. “In the meantime, I think we can look for additional acquisitions from Netflix, which has only dabbled in acquisitions today.”
Treece expects Netflix to target smaller production companies and minor streaming services that offer technological innovations that Netflix would like to own. He also pinpoints Discovery as a potential mover-and-shaker.
“Each of these companies has net revenue over $1 billion annually (about 10 percent of Disney’s net earnings) and will likely try to take advantage of Disney’s slowdown to grow strategically to compete with the new giant of Disney-Fox.”
Sam Williamson, Founder of Streaming Movies Right
Williamson highlights a specific niche that Apple should target if it is indeed hunting for an acquisition.
“What we’ve noticed is that horror is where Netflix have a clear advantage over Disney, and many people love the horror content that Netflix puts out,” he said. “So if Apple want to enter this horse race, the next big acquisition we may see could be Apple attempting to acquire one of the more successful horror studios so they can place more horror content on their platform.”
Williamson notes that Netflix is producing at least one decent horror film per month while Disney has “a bank of horror films to last them for a while.” Though Apple has signed a multi-picture pact with indie studio A24, the latter’s production cycle generally produces three horror movies per year. “I don’t think that output would be enough to draw people away from Netflix, so they’ll likely have to step up the production of content,” he says.