David Zaslav at the Allen & Company Sun Valley Conference on July 9, 2024 in Sun Valley, Idaho.
David Grogan | CNBC
Comcast Chief Executive Officer Brian Roberts had a not-so-subtle message this week for Warner Bros. Discovery CEO David Zaslav: If you’re selling, I’m not buying.
"Instead of engaging in a process to buy content companies, we have focused primarily on organic opportunities like the NBA," Roberts said Tuesday during Comcast’s second-quarter earnings conference call.
If you ask Zaslav, though, the reason Roberts and other potential buyers of media assets aren’t interested is because the government has scared them away.
Zaslav earlier this month publicly stated a theme that many legacy media executives have privately said for years: The current U.S. administration has stymied deal-making, and business leaders are desperate for the next U.S. president to usher in more mergers and acquisitions.
"We just need an opportunity for deregulation, so companies can consolidate and do what we need to be even better," Zaslav told reporters at Allen & Co.’s annual Sun Valley conference.
Roberts’s disinterest and Zaslav’s lament shine a light on a fundamental question that may determine the future of the media and entertainment industry: Do the biggest media and technology companies want to buy smaller rivals for their content and can’t do so because of overly stringent regulations, or are they simply uninterested in the assets?
Exhibit A: During months of Paramount Global sale conversations, controlling shareholder Shari Redstone engaged with dozens of potential buyers before landing on a deal with Skydance Media, a relatively small studio that earlier this month agreed to buy a controlling stake in Paramount without acquiring the entire company.
Shari Redstone at the Allen & Company Sun Valley Conference on July 10, 2024 in Sun Valley, Idaho.
David Grogan | CNBC
Redstone received scant interest from big media and tech players who could have used her company’s movie and TV studio and library to bolster their own streaming services, according to people familiar with the matter. The sale process proved the largest media and technology didn’t want Paramount.
Other companies, such as Starz, AMC Networks and Vice Media, have also searched for deeper-pocketed buyers and come up empty.
There are two plausible explanations for why larger media and technology companies aren’t interested, said Rob Kindler, global chair of M&A at the law firm Paul, Weiss.
"Either they don’t want the assets, or they’ve decided the regulatory hurdles are too high," Kindler said.
A push toward deregulation will give the media industry more clarity. It’s possible technology and the largest entertainment companies have sworn off significant media assets as acquisition targets given the governmental red tape around antitrust, national security and antiquated communications rules.
Or, perhaps, legacy media companies are simply undesirable assets to own.
The media landscape is in a state of flux. While some argue that regulatory hurdles are stifling mergers and acquisitions in the industry, others believe larger players are simply losing interest in buying struggling legacy media companies. A look at recent deals, including the sale of a controlling stake in Paramount Global to Skydance Media, reveals a lack of interest from big tech and media players, raising questions about the future of the industry.
Key Takeaways:
- Comcast CEO Brian Roberts has publicly rejected acquiring Warner Bros. Discovery, suggesting a lack of appetite for buying content companies.
- Warner Bros. Discovery CEO David Zaslav argues that the government’s regulatory scrutiny is hindering deal-making, calling for deregulation to enable consolidation.
- Recent failed attempts to sell media companies like Paramount Global and Starz illustrate a decline in interest from the largest media and technology players.
- Experts suggest that the current regulatory environment, coupled with the poor track record of recent media mergers, could be making big players apprehensive.
Deal or no deal
Zaslav’s perspective on the current situation stems from his own experience. He successfully extended the life of Discovery Communications by merging it with AT&T’s WarnerMedia in 2022. This deal saved Discovery from becoming a subscale content provider with declining cable networks. Now, he sees a similar situation unfolding with Warner Bros. Discovery, facing challenges like declining stock value and potentially losing NBA media rights.
To combat these challenges, Zaslav believes consolidation is crucial. He believes that merging with a larger company, with potential candidates including Amazon, Apple, Google, Paramount Global, Fox, or Disney, would provide the financial resources to secure valuable content and compete against tech giants like Amazon. In this context, deregulation becomes a lifeline for legacy media companies.
The Regulatory Perspective
This push for deregulation raises concerns about its potential impact on local news and the power dynamics between major media companies and tech giants. However, Zaslav argues that if the biggest players in the world continue to invest in acquiring valuable content, such as live sports rights, it could lead to the gradual obsolescence of legacy media.
Warner Bros. Discovery is currently fighting to maintain its NBA media rights, even going so far as to sue the league to secure its position after losing out to Amazon. This decision underscores the growing threat posed by tech companies with their immense financial resources.
Terrible track record
While Zaslav champions consolidation as a savior for legacy media, a closer look at past mergers paints a different picture. Recent years have been littered with deals that resulted in massive value destruction for shareholders. The merger of Discovery and Scripps Networks Interactive in 2018, followed by the acquisition of WarnerMedia, has seen the combined entity’s market capitalization plummet to $20 billion, while burdened by $40 billion in debt.
Other major deals, like the merger of Viacom and CBS in 2019, have also resulted in significant losses for shareholders. Disney’s purchase of Fox assets in 2019, and Comcast’s acquisition of Sky in 2018, have similarly failed to deliver value for investors.
These failed deals raise a crucial question: were these mergers driven by a lack of better alternatives, or were they simply bad investments? While it’s tempting to blame the mergers themselves, it’s important to consider what would have happened if these companies had remained independent. The poor performance of smaller media companies like AMC Networks and Lionsgate suggests that staying independent might not have been a better solution.
Hazy regulatory environment
It’s undeniable that executives are apprehensive about navigating the current regulatory landscape, fearing that deals that were once straightforward may now be blocked by antitrust concerns and other regulatory pressures. The increased scrutiny has shifted the focus of deal-making, with legal teams now playing a central role in assessing regulatory implications before any financial considerations.
However, the degree to which regulation is truly stalling deals remains unclear. While the rhetoric from the Biden administration is more aggressive, the actual number of merger enforcement actions has not increased significantly. Still, the perceived threat can be enough to deter companies from attempting these risky transactions, despite the potential benefits.
Moreover, the prolonged approval process is adding substantial delays, causing uncertainty and delaying the integration of acquired companies. The sheer length of time required to secure approval, potentially extending for more than a year, can paralyze both the acquirer and the seller, making them unable to fully plan for the future.
More bark than bite?
Despite the perceived increase in regulatory scrutiny, some experts argue that the real impact on deal-making may be overstated. While there is a noticeable slowdown in large-scale media mergers, the overall volume of deals, both small and large, continues. Additionally, the data suggests that the number of mergers facing regulatory challenges has not dramatically increased compared to previous years.
The delay in approval processes, however, may be causing more apprehension among companies, even if there are not necessarily more deals being blocked outright. This prolonged uncertainty, coupled with the negative track record of previous mergers, may be enough to make companies wary of pursuing large-scale acquisitions.
The future of the media industry hangs in the balance. Whether it’s a lack of interest, regulatory hurdles, or a combination of both, the decline in large-scale mergers suggests a period of uncertainty ahead. Time will tell whether Zaslav’s call for deregulation will be heeded and if legacy media companies can find a way to navigate this evolving landscape.
David Zaslav at the Allen & Company Sun Valley Conference on July 9, 2024 in Sun Valley, Idaho.
David Grogan | CNBC
Comcast Chief Executive Officer Brian Roberts had a not-so-subtle message this week for Warner Bros. Discovery CEO David Zaslav: If you’re selling, I’m not buying.
"Instead of engaging in a process to buy content companies, we have focused primarily on organic opportunities like the NBA," Roberts said Tuesday during Comcast’s second-quarter earnings conference call.
If you ask Zaslav, though, the reason Roberts and other potential buyers of media assets aren’t interested is because the government has scared them away.
Zaslav earlier this month publicly stated a theme that many legacy media executives have privately said for years: The current U.S. administration has stymied deal-making, and business leaders are desperate for the next U.S. president to usher in more mergers and acquisitions.
"We just need an opportunity for deregulation, so companies can consolidate and do what we need to be even better," Zaslav told reporters at Allen & Co.’s annual Sun Valley conference.
Roberts’s disinterest and Zaslav’s lament shine a light on a fundamental question that may determine the future of the media and entertainment industry: Do the biggest media and technology companies want to buy smaller rivals for their content and can’t do so because of overly stringent regulations, or are they simply uninterested in the assets?
Exhibit A: During months of Paramount Global sale conversations, controlling shareholder Shari Redstone engaged with dozens of potential buyers before landing on a deal with Skydance Media, a relatively small studio that earlier this month agreed to buy a controlling stake in Paramount without acquiring the entire company.
Shari Redstone at the Allen & Company Sun Valley Conference on July 10, 2024 in Sun Valley, Idaho.
David Grogan | CNBC
Redstone received scant interest from big media and tech players who could have used her company’s movie and TV studio and library to bolster their own streaming services, according to people familiar with the matter. The sale process proved the largest media and technology didn’t want Paramount.
Other companies, such as Starz, AMC Networks and Vice Media, have also searched for deeper-pocketed buyers and come up empty.
There are two plausible explanations for why larger media and technology companies aren’t interested, said Rob Kindler, global chair of M&A at the law firm Paul, Weiss.
"Either they don’t want the assets, or they’ve decided the regulatory hurdles are too high," Kindler said.
A push toward deregulation will give the media industry more clarity. It’s possible technology and the largest entertainment companies have sworn off significant media assets as acquisition targets given the governmental red tape around antitrust, national security and antiquated communications rules.
Or, perhaps, legacy media companies are simply undesirable assets to own.
The media landscape is in a state of flux. While some argue that regulatory hurdles are stifling mergers and acquisitions in the industry, others believe larger players are simply losing interest in buying struggling legacy media companies. A look at recent deals, including the sale of a controlling stake in Paramount Global to Skydance Media, reveals a lack of interest from big tech and media players, raising questions about the future of the industry.
Key Takeaways:
- Comcast CEO Brian Roberts has publicly rejected acquiring Warner Bros. Discovery, suggesting a lack of appetite for buying content companies.
- Warner Bros. Discovery CEO David Zaslav argues that the government’s regulatory scrutiny is hindering deal-making, calling for deregulation to enable consolidation.
- Recent failed attempts to sell media companies like Paramount Global and Starz illustrate a decline in interest from the largest media and technology players.
- Experts suggest that the current regulatory environment, coupled with the poor track record of recent media mergers, could be making big players apprehensive.
Deal or no deal
Zaslav’s perspective on the current situation stems from his own experience. He successfully extended the life of Discovery Communications by merging it with AT&T’s WarnerMedia in 2022. This deal saved Discovery from becoming a subscale content provider with declining cable networks. Now, he sees a similar situation unfolding with Warner Bros. Discovery, facing challenges like declining stock value and potentially losing NBA media rights.
To combat these challenges, Zaslav believes consolidation is crucial. He believes that merging with a larger company, with potential candidates including Amazon, Apple, Google, Paramount Global, Fox, or Disney, would provide the financial resources to secure valuable content and compete against tech giants like Amazon. In this context, deregulation becomes a lifeline for legacy media companies.
The Regulatory Perspective
This push for deregulation raises concerns about its potential impact on local news and the power dynamics between major media companies and tech giants. However, Zaslav argues that if the biggest players in the world continue to invest in acquiring valuable content, such as live sports rights, it could lead to the gradual obsolescence of legacy media.
Warner Bros. Discovery is currently fighting to maintain its NBA media rights, even going so far as to sue the league to secure its position after losing out to Amazon. This decision underscores the growing threat posed by tech companies with their immense financial resources.
Terrible track record
While Zaslav champions consolidation as a savior for legacy media, a closer look at past mergers paints a different picture. Recent years have been littered with deals that resulted in massive value destruction for shareholders. The merger of Discovery and Scripps Networks Interactive in 2018, followed by the acquisition of WarnerMedia, has seen the combined entity’s market capitalization plummet to $20 billion, while burdened by $40 billion in debt.
Other major deals, like the merger of Viacom and CBS in 2019, have also resulted in significant losses for shareholders. Disney’s purchase of Fox assets in 2019, and Comcast’s acquisition of Sky in 2018, have similarly failed to deliver value for investors.
These failed deals raise a crucial question: were these mergers driven by a lack of better alternatives, or were they simply bad investments? While it’s tempting to blame the mergers themselves, it’s important to consider what would have happened if these companies had remained independent. The poor performance of smaller media companies like AMC Networks and Lionsgate suggests that staying independent might not have been a better solution.
Hazy regulatory environment
It’s undeniable that executives are apprehensive about navigating the current regulatory landscape, fearing that deals that were once straightforward may now be blocked by antitrust concerns and other regulatory pressures. The increased scrutiny has shifted the focus of deal-making, with legal teams now playing a central role in assessing regulatory implications before any financial considerations.
However, the degree to which regulation is truly stalling deals remains unclear. While the rhetoric from the Biden administration is more aggressive, the actual number of merger enforcement actions has not increased significantly. Still, the perceived threat can be enough to deter companies from attempting these risky transactions, despite the potential benefits.
Moreover, the prolonged approval process is adding substantial delays, causing uncertainty and delaying the integration of acquired companies. The sheer length of time required to secure approval, potentially extending for more than a year, can paralyze both the acquirer and the seller, making them unable to fully plan for the future.
More bark than bite?
Despite the perceived increase in regulatory scrutiny, some experts argue that the real impact on deal-making may be overstated. While there is a noticeable slowdown in large-scale media mergers, the overall volume of deals, both small and large, continues. Additionally, the data suggests that the number of mergers facing regulatory challenges has not dramatically increased compared to previous years.
The delay in approval processes, however, may be causing more apprehension among companies, even if there are not necessarily more deals being blocked outright. This prolonged uncertainty, coupled with the negative track record of previous mergers, may be enough to make companies wary of pursuing large-scale acquisitions.
The future of the media industry hangs in the balance. Whether it’s a lack of interest, regulatory hurdles, or a combination of both, the decline in large-scale mergers suggests a period of uncertainty ahead. Time will tell whether Zaslav’s call for deregulation will be heeded and if legacy media companies can find a way to navigate this evolving landscape.
