Talk about a news week! (Or month…)
The obvious and buzzy (and covered everywhere!) story is the WGA officially going on strike after talks broke down with the streamers and studios. But after giving the WGA-AMPTP negotiations the top spot in my last “Most Important Story…” column, I’m not ready to give this topic top billing again.
But that doesn’t mean that I’m done writing about the WGA-AMPTP negotiations. Far from it. I’ve got a ton of ideas. I’m just taking a break. My goal is to try to vary things up and not to hit one topic over and over again for multiple weeks in a row. And right now, my gut says that this strike will last a while…so trust me: I’ll keep writing about it.
(If you’re still hungry for WGA content, here’s my article about residuals and my article about the need for ratings transparency over at The Ankler, and the article where I debunked some myths last week.)
Today, instead, I’m going to focus on the big decision by the United Kingdom’s Competition and Market Authority to block the Microsoft-Activision merger. Wayyyyyyy fewer of my readers likely saw this news and, as crazy as it sounds, this deal could easily be more influential for the future of the entertainment business.
This decision is huge! So let’s get right into it.
Most Important Story of the Week – The UK Blocks Microsoft-Activision Acquisition
If one man embodies the hopes and dreams of M&A fans (meaning investment bankers and corporate merger lawyers), it’s probably Warner Bros Discovery CEO David Zaslav. After all, he snatched up Scripps back in 2017, then famously bought Warner Bros two years ago from AT&T.
But he may not be done. I keep reading articles that imply that it isn’t just possible that Comcast-NBCUniversal buys WBD, but downright likely. (The main source was this report in Puck. Their contributor, William D. Cohan, has been banging the WBD-NBCU merger drum for a while. Indeed, Cohan makes it sound like the deal isn’t just going to happen, it’s basically done and the two parties are waiting for some tax breaks to expire next year.)
As an industry, analysts love to imagine hypothetical mergers. Folks have longed dreamed/speculated that someone should buy Paramount Global. Or look at the speculation from a few weeks back about Bob Iger selling Disney to Apple. Obviously, Lionsgate has been a perpetual acquisition target since I was in business school.
And yet check out this headline out of the United Kingdom last week:
Frankly, I don’t understand this disconnect. There’s been renewed, bipartisan support to begin enforcing U.S. antitrust law, and yet the pro-merger folks merely shrug and say, “Yeah, the environment is a bit more challenging, but we’ll overcome that.” Frankly, any article imagining a big, big, big merger or acquisition needs to address this potential roadblock head on. (I’ve been writing on this for a while.)
So what specifically happened here? Well, every country has their own legal processes to assess whether mergers would be anti-competitive in their territory. In this case, the UK’s antitrust enforcers ruled that a Microsoft-Activision tie-up could help Microsoft monopolize cloud-based gaming in the future. This rule would only impact the UK, but since the UK is a huge gaming market, it could kill the deal. (And it could help motivate both the EU and US to challenge the merger on similar grounds.)
And while this ruling may surprise some investment bankers and many analysts, it shouldn’t.
One of the biggest but quietest trends in business has been a bipartisan, renewed push for stronger antitrust laws. In other words, fighting back against increasing consolidation across all industries. My go-to read on this is Matthew Stoller (one of Twitter’s “Matts”). As he’s covered for years, especially during the Biden administration, there are a lot of people and organizations who are trying to make antitrust law stronger. President Biden put two tough enforcers in charge of both the FTC (Lina Khan) and DoJ Antitrust Division (Jonathan Kanter) and has pro-competition economists advising him, like Tim Wu.
Stoller explained the UK decision on Microsoft here, basically arguing that even with the proposed “remedies” Microsoft offered to mitigate the impact of the acquisition, the UK still thought the deal was anti-competitive, but focused on cloud computing. As he’s noted before, most companies offer “remedies” to antitrust enforcers to get deals approved, then renege on those remedies and face no consequences. (Stoller mentioned Sprint-T-Mobile, and I’d add Comcast buying NBC-Universal.)
In practice, though, it isn’t like every merger is being stopped everywhere all at once. Bringing back strong antitrust enforcement will take time. Just today, Stoller noted how the US federal judiciary still off takes the corporate sides in many antitrust cases. But this renewed enforcement is absolutely blocking deals and discouraging them. This issue (along with rising interest rates) has driven M&A activity to a multi-year low:
My advice to you? If you’re reading about some hypothetical merger amongst entertainment giants and the author doesn’t mention antitrust, take it with a huge grain of salt. And I mean huge.
Just run the numbers on the size of the companies involved. Apple is already larger/about as large as Microsoft, so would regulators let it buy a Disney or Netflix, two companies that are much bigger than Activision? Same for NBC Universal buying WBD or Paramount Global: Comcast is pretty big already—and a dominant distributor in both the U.S. and U.K.—and a deal would likely only lessen competition in entertainment.
All that said, a lot of investment bankers and corporate lawyers get paid a lot of money to imagine and put together these deals. And CEOs support (or even encourage) them because they like sitting at the helms of ever bigger companies. (And often decreasing competition does help share prices.) Imagine you’re David Zaslav: seven years ago, you ran some Discovery cable channels. If an NBCU-WBD merger happens, he runs two movie studios, a ton of cable channels, a broadcast network, two TV studios, a theme park and more. Who wouldn’t want that?
So are deals “impossible”? Not at all, but based on the current trends, mega-mergers are getting tougher and tougher to get approved.
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