THB #289: Years End 3 - What We Don't Know 2
Mergers & Acquisitions
Yesterday newsletter ended up leaning into the potential advertising market for streaming a bit harder than I expected. When we make plans, deity-of-your-choice laughs, right?
I was going to push “What We Don’t Know” aside for a day to get to my Top 10 movie and TV list for the year, but then I was reminded about another thing that people think they know… but we just don’t know…
Mergers & Acquisitions
Rarely do you read any of the Forecasts For The Industry in 2023 pieces without at least one, often 3 or 4 assumptions that Mergers & Acquisitions of significant size will happen.
One of my predictions last year was that there would not be any such significant mergers. And I am inclined to suggest the same for 2023. In some ways, even more strongly.
The question you rarely see an answer to is, “Why?”
Why would anyone want to acquire a company that isn’t succeeding at doing most of the same things that the acquirer is attempting and likely coming up short in doing?
Disney had a surprisingly small library before the purchase of Fox assets, including a grand total of 85 film titles between Marvel, Pixar, and LucasFilm. A mighty 85… but just 85.
So what did Disney get for $71 billion?
They sold Fox Sports Networks for $10 billion and Endemol Shine and Apollo Management for $2.2 billion.
33.3% of Hulu - valued at roughly $9 billion
So we’re down to $48.8 billion.
Domestic Cable/Sat Channels, inc FX, National Geographic
73% stake in National Geographic
Star and Star India account for about $4 billion a year in revenues so far.
So let’s say Disney paid $35 billion - $40 billion for…
20th Century Fox Film and TV Studios - The libraries, encumbered as they were, including IP rights. Disney all but dumped operations of the film side (aside from Searchlight) and kept the TV side operating, merging it with their own operations.
Disney has released 26 films (and the Avatar re-release) from Fox and Fox Searchlight (now 20th Century Studios and Searchlight Studios) since the merger closed on March 20, 2019, the most recent being Avatar: The Way of Water.
Interestingly, the big dump of Fox movies wasn’t quite as big a dump as it seemed to be. Disney released 12 Fox/Searchlight movies before COVID and 12 after COVID (if you include the Avatar re-release). Between March 2020 and August 2021, 3 Former Fox films were freed and died in the wild.
My estimate on the cost of those 25 releases is just over a billion dollars. (Imagine… a studio making 24 new films for a billion dollars!!!) They grossed just over $2 billion worldwide, with 7 of the titles grossing over $100 million worldwide, 4 since COVID started. And this is before Avatar: The Way of the Water. (Note to those who took Jim Cameron’s bait… the movie didn’t cost more than $500 million… probably under $400 million.)
Yes… there were marketing costs. But essentially, Disney+ and Hulu got those films for their streaming services for those marketing costs, perhaps less given that they shared most of the Pay One rights with HBO Max, which created some more revenue.
So let’s give them breakeven on existing content. TV side is making money. So maybe Disney overpaid by $10 billion or so in the end. Which is a lot of money to human people. But it won’t buy you Twitter or EA.
It could have bought they MGM/UA, it seems. But that was Amazon’s purchase. They also overpaid. But less so.
And what is Amazon keeping? An expensive library. Now both the movie and TV leaders are gone gone gone. Not saying it was the wrong choice (or the right choice)… just counting things up. They bought it… they can break it and rebuild it in any way they like.
So I ask again… why would anyone buy Paramount ($11b market cap) or Lionsgate ($1.3b market cap) if what they want is a content partnership?
If I were Zaslav, I would be all over Lionsgate - even as I am weighed down by debt - to make a marriage that would not be a merger. Lionsgate’s television library is built for FAST and its movie library is right in between the HBO taste and the Discovery taste levels. Give them the opportunity to be a much bigger player in 5 years. Earn their way. Prove their value with the power of Warner Bros Discovery behind them and with them powering a layer or two of WBD’s platforms. Then let them break off or buy them in 5 years, when the WBD finances are not bleeding all over Barham.
Sony’s movie side is not in play at this point after making overall deals with Netflix for Pay-1 domestically and Disney for Pay-2.
Paramount has this one year - with Scream, Transformers, and Mission: Impossible leading the IP way - to stake a claim. They should probably be following the Sony example on that side. And they should be game changers in streaming, taking the leaps of concept no one is yet ready to take. They need to be seen as players in a much more aggressive way. They should have bought Sunday Ticket so they could make Paramount+ a must-have at $20 a month including all of their NFL games, charging another $10 a month for the package of the Fox games, even it meant eating a billion a year for now. If they want to play in the future bigs, they need to get much more aggressive right now. (How many years have I said this?)
You wanna talk Roku? Okay. If you like. But that’s currently at a $5.7 billion market cap, which would be just slightly over the line for my idea of a small deal worth doing in this marketplace.
So let’s talk… who needs to own the box?
I love the idea of owning the box, myself. But when Apple chooses not to get into the box for $40 business and keeps pushing out new premium quality Apple TVs… well, they are telling me that the Roku business in 65 million households isn’t worth their time.
The harsh reality is that Amazon is in the cheap box biz. Google is in the cheap box biz. And Roku is in the cheap box biz. And the two companies with super deep pockets seem just about as concerned about knocking down Roku as Apple does.
So who needs to buy Roku?
Access is not a big issue in the streaming business right now. And spending into the box world - also meaning into built-in platforms in TVs - is not high on the list of those who aren’t sure if they can get to profit in streaming alone in the next few years.
Sony would be the logical buyer for Roku… except that they might well have problems with the U.S. government when it comes to trying to take control of some many American living rooms.
To me, what this segment is needing is some elegant solutions. And whether it’s Roku or Fire or Chromecast, there is some sense that this is all an exercise in feeding consumers more commercials, not making a more and more confusing exercise of watching TV easier.
I guess I haven’t mentioned Comcast… which is where so many of the rumors of an acquisition seem to blossom. Same question… why? What level of scale is NBC/Universal going to reach by adding another library? They would be better off overfunding the Blum/Wan merger and to keep it all in house than bringing another bloated, dysfunctional company and creating debt while trying to navigate the way away from cable as anything more than a marginal business by 2030. Comcast will suffer for the devaluation of their copper… but that doesn’t mean they can’t keep thriving elsewhere.
People keep writing that Comcast needs more scale. WHY?!?! It’s like someone heard a rumor at a Junior High party and now they all sure that 9th grade pot-smoking hippie teacher Mrs. Klonowitz had sex with 10th grader Billy Schwartz and that’s why he left school. (It turns out the principal slept with Billy’s mom and they are moving to Michigan right NOW!)
Who, exactly, has scale worked out so great for?
As for Peacock, I think the real issues have started to show. They leaned into NBC-style programming in originals for Peacock. Mistake. They haven’t seriously leveraged Bravo in a real way. Their NFL programming around Sunday Night Football has not been impressive. Movies in 45 days has limited theatrical success and not been so exciting that it makes it a must-have pay channel. They kinda lucked into Yellowstone… their strongest show. It feels like going onto a site to find something, not like you are getting excited and surprised every time you turn it on. So you don’t turn it on that much. I will say, my wife is using it to see reruns of the Law & Order shows and the Chicago shows without commercials… so that push away from Hulu is working.
But what part of throw more of the same at the wall at a cost of $20 billion and see what sticks seems like a great idea?
There is no idea that can’t be a good idea, if someone has a reason for it. Maybe the alternative argument is that it is too expensive or a bad fit or whatever. But I don’t believe in just trashing ideas on their face. Bring something new to the table and I am all ears.
Agents and lawyers make a lot of money on Mergers & Acquisitions. That is why they tell journalists that they have to happen every week of every year.
Just one thing that is usually left off… why?
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