News Friday 20th July 2018

June: A month of I do’s and proposals in the media world

The pace of merger and acquisition activity in the industry has accelerated

In our Western calendar, June is always a month for transformation and transitions, most notably a time for weddings and graduations. In the global media world, June 2018 was also month of transformation which will impact the media industry evolution over the next few years.

The most notable transformation hung on a court decision about whether AT&T could buy Time Warner. While many industry experts believed that the government had not made a substantive case to prevent the merger, there were concerns that Judge Leon would stipulate conditions for the merger, such as requiring the sale of CNN or that the decision would raise enough questions that would encourage the Trump Administration to counter appeal. All concerns were washed away when Justice Leon issued a determinative ruling, stating that “The Government has failed to meet its burden of proof to show that the merger is likely to result in a substantial lessening of competition.”

Since Judge Leon’s ruling, the pace of merger and acquisition activity in the industry has only accelerated.

The Fox hunt

The AT&T decision has been a boon to Fox shareholders. Comcast got the free pass to enter into a bidding war with Disney for the Fox assets. Within 24 hours, Comcast put forward a formal all cash bid of $65 billion for Fox, upping Disney’s $52.4 billion all stock deal proffered in December. Disney subsequently. A week later, Disney increased its offer to $71.3 billion, part stock and part cash. On June 27, the US Department of Justice provided the OK for the Disney-Fox deal to go through, provided that Disney divest the 22 Fox Regional Sports Networks. Fox has scheduled a shareholder vote on the Disney-Fox merger for July 27th, urging shareholders to support a deal that is both financially higher and more tax efficient for the Murdoch family trust.

With a few weeks to go, market speculators are wondering whether Comcast will bid higher. It is known that the company has been talking with other potential strategic and financial partners to support a higher bid. On the same day the US government approved a Disney-Fox tie up, the Wall Street Journal reported that Comcast is “exploring tie-ups with other companies or private equity investors. The Journal indicated that one potential scenario would have a strategic partner aligning with Comcast to purchase the US assets while Comcast takes on the international assets, including Sky PLC and Star India. Should this happen, would Disney then bid higher or walk away? Disney needs Fox as it prepares to launch its online entertainment offering and to ensure its international box office dominance. Comcast very much needs an increased international footprint. While relations between Disney CEO Bob Iger and Comcast CEO Brian Roberts are not warm, perhaps, they will find a way to carve up the Fox assets.

As of this writing, no announcements have been made; however Mssrs. Roberts, Iger and Murdoch will be together in Sun Valley, Idaho the week of July 9th for the Allen & Company Conference. This bucolic mountain resort in the Western United States has often been the home of major media mega-deals and in 2018 could become the backdrop of an intensified “Fox” hunt. Regardless, however things finally end, will seriously impact how major media and entertainment companies will compete in a landscape increasingly dominated by the large internet giants.

AT&T goes shopping

AT&T’s CEO Randall Stephenson has wasted no time since the June 12th decision from the court to build what he calls “a modern media company” integrating AT&T’s data with Warner Media’s content. On June 21st, the company announced the launch new internet service Watch TV, which features a total of 31 networks, including the channels they just acquired. Priced at $15 per month, the service will be provided free to subscribers with unlimited data plans.

Four days later, AT&T confirmed that it is buying AppNexus, one of the world’s largest advertising exchanges for $1.6 billion. AppNexus connects digital publishers with ad agencies, enabling them to buy targeted ads across digital platforms. This purchase significantly expands AT&T’s footprint in the digital advertising arena and enables them to compete more directly against Google and Facebook. AT&T’s shopping spree is likely not over. Market speculation is that it is looking to buy the rest of Otter Media, run by Peter Chernin at a valuation of $1 billion. Otter Media runs a millennial-focused media properties, like Crunchyroll, an anime subscription service and the multi-channel network Fullscreen, amongst others.

Over the coming months, it will interesting to see how AT&T’s strategy for HBO evolves. At the Recode Conference in May 2018, Randall Stephenson told Peter Kafka, “HBO, I still believe, is one of the premium video assets in the business right now, and comparable to Netflix, and I’m anxious to kind of move the direct-to-consumer platforms as aggressively as possible.” Netflix in 2018 is spending over $8 billion on content while HBO’s content budget is estimated to be $2 billion. How “aggressively” will HBO increase its budget in 2019?

US broadcasters hook up

On the same day, AT&T announced its plans to acquire AppNexus, publicly traded Gray Television announced its plans to acquire Raycom Media in a cash and stock deal valued at $3.65 billion, creating the third largest broadcast group in the U.S. after Sinclair Broadcasting Group and Nexstar Media. The motivation behind this deal is create cost efficiencies, estimated to be $40 million annually, and drive retransmission fee leverage.

In the meantime, there is speculation around other mergers within the U.S. broadcast industry. At the same time, the FCC is reviewing rules and regulations around ownership caps within the industry. There are also numerous challenges from disparate groups to the pending Sinclair-Tribune merger.

But where are the internet companies?

Noticeably absent from the media merger discussions are the large internet giants – Facebook, Google, Apple and Amazon. Instead of buying legacy media companies, they were making deals directly with talent in the month of June.

Since October of last year, Apple has not acquired any media companies, but has announced over 17 major content deals, three of them in the month of June, including a multi-year pact with Oprah Winfrey. In June, Amazon purchased the right to broadcast 20 Premier League games for 3 years in the UK. Facebook announced its first news partnerships for its Facebook Watch platform and in early July entered into conversations with global soccer star Ronaldo. YouTube Premium announced a deal with George Clooney’s Smokehouse productions to produce a dark comedy starring Kirsten Dunst.

Why aren’t the internet giants buying legacy media companies? They do not need to – they can go directly to the talent leveraging their data and knowledge of audiences. Their businesses will continue to grow regardless. In the meantime, legacy media companies along with telco’s are facing declining businesses. Mergers and acquisitions become vehicles for gaining scale and cutting costs. And in the cases of AT&T-Warner Media and Disney-Fox, such mergers provide assets that can help them more quickly accelerate their business transformation models into something that can potentially compete against the digital monoliths.

For over a century now, leaders of media and entertainment industry, have successfully figured out how to harness technology to transform themselves. However, in managing prior transformations, they never had competition as large and as powerful as Google, Facebook, Apple, Netflix and Amazon.

In taking on such competition, strategic mergers and acquisitions, however, are only one piece of the equation in ensuring long term enterprise value. Traditional media and entertainment companies must continue innovating from within, by combining their strengths in content creation and media sales with technology and data in multiple ways, including:

  • Building and developing new experiences for consumers across multiple screens
    innovating monetisation models, including targeted and personalised advertising as well as direct to consumer models
  • Revamping window strategies to increase revenue streams


While the challenges are monolithic, the industry’s ability to harness its innate creativity will ultimately be more critical than strategic mergers and acquisitions.

This article first appeared on C21 Media (external link)

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