Most Important Story of the Week and Other Good Reads – 14 December 2018: The M&A Year That Wasn’t

I’m not writing a “year end roundup” article this month. I do want to do one of those next year, but I’ll write it in August. Why August? Well it makes a lot more sense than January. The box office peaks in summer, so we can judge it at the end of August. Plus, TV season ends in May-ish, so we can judge that too. It makes more sense to evaluate the media & entertainment landscape in August/September than December.

Which doesn’t mean the end of the year isn’t a great time to think longer term. I love the idea of the “fifty year newspaper”. (H/T to The Indicator who got the idea from Oxford’s Our World in Data) This is the question, what would be the headlines of the last “fifty years”, as opposed to for this week? We could use more of that in every part of media, and on different time frames.. Not just year end “roundup” articles, but articles that try to predict what the most important topics were that influenced life over the last three months, or five years or fifty, like the inspiration.

For business, mergers & acquisitions would probably take a lot of headlines. For instance, if I did a “six month newspaper”, would M&A news make it? It would, but not for why you think…

The Most Important Story of the Week AND M&A Update: Wall Street May Slow on M&A

The inspiration for this story this week was two parts. Part one was Verizon writing down the Oath acquisitions (AOL & Yahoo) that inspired CNBC’s Alex Sherman to write an article with the headline, that “at least Verizon isn’t AT&T”. He was echoed by Tara Lachapelle (who I’m reading weekly now, as should we all) that quipped that Verizon should maybe even exit media as a business.

In all these, got me thinking that maybe the market is reconsidering M&A. I even quipped this to Alex Sherman on Twitter. I flippantly referred him to my series on M&A to remark that the M&A tidal wave never came for media & entertainment. And guess what? He had already written a column with the headline-that-tells-it-all, “Wall Street Expects a Two Year Pause in Big Media and Telecom M&A”.

So I was about six months two early in my initial prediction!

Reviewing the M&A landscape a tad early–I expect some articles summarizing the year in M&A to pop up in January–I was right that the “pace” of M&A didn’t really change after Judge Richard Leon ruled in favor of AT&T back in June. Consider the “news”on M&A I’ve haphazardly collected over the last six months:

– SiriusXM bought Pandora

– Comcast bid on Fox, forcing Disney to raise its price

– Comcast beat Disney in buying Sky.

– CBS may still merge with Viacom

– Multiple bidders are trying to buy RSNs from Fox deal.

– Nexstar bought Tribune after the Sinclair acquisition fell apart.

Five of those six deals have been going on since last year. Really, the biggest news was that Comcast was freed from antitrust worries, so they leapt into the market, which mainly caused Disney to raise its buying price for Fox. (And they overpaid for another asset they were already interested in.) We still haven’t seen a major technology company swallow a traditional studio, and the studios that started the year not being acquired finished the year not being acquired. Is Pandora getting swallowed up huge news?

Which isn’t to say that M&A won’t continue. That’s not what I predicted back in July. Instead, the measured–but not sexy headline–is that M&A will continue at the pace it has for the last few years: a lot of smaller deals, with some bigger and bigger deals as the entertainment, media & communications industry inexorably consolidates to four or five giant super-conglomerates. Actually, all industry may be ten companies by the end of the Trump administration. (Joking?)

Two things could slow this pace, in my opinion, and Sherman mentioned them in his piece. I’ll echo them because I think they are the parts we neglect when discussing the role of M&A in general. First, the economy writ large. The last high in dealmaking preceded the 2008 crash. Yep, 2007 saw 1,200 deals, which was a high by total deals. The drying up of liquidity ended adventurism in acquiring companies. With fears of a recession spooking the stock market since October, this could again happen. Not that anyone should predict recessions as a general rule–if I could reliably do that, I’d be a millionaire not a columnist on the internet–but the worry is out there.

(Here is the chart of M&A deals from my series to put it into context. Oh, and the table showing growth.)’

Screen Shot 2018-12-18 at 3.12.55 PM

Number of M&A Deals by Year (Source: News reports annually)

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The Wall Street analysts fear another boogie man that I don’t want to ignore eitehr: antitrust legislation. Or, “Elizabeth Warren wins the Presidency/Attorney General job.” Imagine a world where Democrats come into power, and in addition to their “corporate citizenship” bills, reinforce the backbone of antitrust legislation to crack down on all anti-competitive behavior, not just anti-competitive behavior that leads to higher prices for consumers. That could scare off some deals, along with the Trump administration’s general wishy washiness on deals. (They support some; fight others.)

We’ll see. If Amazon bought Verizon tomorrow, the whole narrative would shift again. Overall, I think we’re seeing enough evidence to know that M&A will continue as it has for the last two decades, depending on the economic situation.

Lots of News with No News AND Data of the Week – FX Says the Number of Scripted Show is Up, Again

I’ll say it, this is a lots of news with no news. How do you like them apples, to quote a Matt Damon Christmas tree ornament.

The pace of growth in “scripted series” was below inflation. Only 8 new shows for a total of 495 scripted shows. Since that isn’t sexy, most everyone dove into the categorization provided by FX’s research team: the number of cable scripted shows is down, but it’s up on the “online services”! I assume there was a #GoodLuckTV tweet from Rich Greenfield because of this news.

But.

I see a problem in the data. See, we’re using this data to make two predictions: first, to forecast the death of TV and second, to show that there is more TV than ever. And yeah, the categorization of cable/broadcast/streaming/premium makes sense to prove the former prediction. (Though if you have more series with fewer episodes, that could also be misleading.)

Breaking things up by distributor doesn’t really help with the latter prediction, though. Netflix and Amazon and Facebook do have a lot of new scripted shows, but not all of them are ““originals” in our traditional way of using it. Traditionally, we mean “original” means the show wouldn’t exist but for the intervention of the original company. If NBC doesn’t greenlight friends in the 1990s, we never get Friends. Same for HBO and Game of Thrones. Those shows are “originals” because the initial broadcaster paid most of the money for them. For Netflix and Amazon, shows like Stranger Things and Transparent fit this definition.

But what about a show like say, Trailer Park Boys. That’s a Netflix “original” in America, but not in Canada. Same with Mr. Robot in the UK. That’s an “Amazon Original” in the UK, but not in America. The difference is subtle, but crucial. Some shows are “wholly-owned”, some are “co-productions” and some are “licensed”. (Don’t worry, I’ll do an Explainer in a future article.) This is the distinction I would love, along with the country of origin. In the meantime, just know that if the growth in scripted series came from internationally produced, licensed originals–I tentatively I believe it did–well, then the growth in streaming series is way less impressive.

So if you had excluded some of those scripted series, then the news story would have been the end of peak TV, which would also seem premature.

Listen of the Week AND Context Update – The Indicator on Recession Worries

I know I said above you shouldn’t predict whether or not we’re about to enter a recession. But it reminded me of a great recent (fine, November) episode of The Indicator. It also seems like this is all anyone can talk about when it comes to the economy because the stock market is having a rough stretch, which I’ve written about before. But the stock market isn’t the economy!

Since this is “double categories” day, go listen to “Recession Indicators Part I” episode of Planet Money’s The Indicator. It acts as both our “Context Update” and “Listen of the Week”. While host Cardiff Garcia is obsessed with the yield curve (or precisely, it’s inversion), they interviewed the head of the Conference Board which uses ten indicators to forecast if we’re heading towards a recession. I like using multiple predictive indicators rather than just one, and according to this forecast, we’re not in doom and gloom territory yet.

M&A Update AND Long Read of the Week – Bob Bakish on Viacom

I am calling out this Cynthia Littleton piece on Bob Bakish and his time at Viacom since replacing Phillippe Daumann as CEO for two reasons:

  1. He says that M&A isn’t a strategy. Basically. Would love if more executives in media & entertainment felt the same way.
  2. He also–if I’m reading between the lines right–skeptical of the “synergy cost savings” of merging with CBS Corp. Most M&A deals would be better if they shared this skepticism.
  3. He didn’t come up through the creative ranks, which is called out multiple times. I want to think more on this topic: are media & entertainment companies better when led by former creative execs? I don’t know, but would love to figure it out.

Read the whole thing here.

 

 

  1. […] not officially. As I wrote about in December, despite the first six months of movement (with all its tricky ways to calculate), the last six […]

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  2. […] mentioned back in December that the mood of M&A may have been dimming. Specifically, Alex Sherman at CNBC had an article explaining why M&A in 2019 likely wouldn’t […]

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