September 2021 Issue
The media industry has seen a spike in M&A activity of late. Streaming services, which were already on the march prior to the outbreak of coronavirus (COVID-19), have become a core focus of global media operations, particularly as content production for traditional media ground to a halt during the pandemic. According to media watchdog Ofcom, 12 million people in the UK signed up for new streaming services during lockdown in the first half of 2020.
Globally, the number of subscriptions to online video streaming services around the world reached 1.1 billion last year, according to the Motion Picture Association — an increase of 26 percent compared to the previous year. In the US, streaming subscriptions rose 32 percent to reach 308.6 million. Meanwhile, global box-office revenues fell by more than $30bn in the year to $12bn.
On the M&A front, deals in the technology, digital, media and marketing industry have rebounding strongly since the early days of the pandemic, when governments first announced social distancing guidelines and lockdown measures. The industry saw 472 completed transactions in Q1 2021, a 36 percent increase compared to the same period in 2021, according to Ciesco. Although the first quarter of 2020 was strong before COVID-19 took hold, with 346 deals recorded, Q1 2021 has been even stronger, up 80 percent compared to Q1 2019.
The desire for content has been a notable deal driver over the last 12 months, acting as a catalyst for a number of megadeals. Telecom giant AT&T agreed to merge its media arm, WarnerMedia, with Discovery to create a $43bn company. The newly merged entity is expected to generate higher revenues than Netflix and will be the second biggest media company in the world, behind Disney. It will also possess one of the deepest intellectual property (IP) libraries of any media company.
“The aggregation of content catalogues is expected to continue, with a number of valuable and eligible media companies, some of which already have their own subscription services, firmly in the sights of potential acquirers.”
The merger is also significant in that it shuts Netflix out from valuable IP, which it had previously used to grow its subscriber base. Like the entry of Disney into the streaming market — its Disney+ service has more than 100 million subscribers after just over a year — the creation of Warner Bros. Discovery will be a significant step in the streaming wars.
Elsewhere, Verizon effectively exited the news world by agreeing a $5bn sale of Verizon Media to private equity firm Apollo. Amazon also agreed an $8.5bn deal to buy film company MGM, a sign of its intention to increase content spend and build out a large media network.
Even prior to the pandemic, consolidation in the media industry was building momentum. In recent years, Disney has acquired 21st Century Fox as well as Marvel and Star Wars, in addition to taking full control of Hulu in the build up to the launch of Disney+. Disney also leveraged its 2018 acquisition of BAMtech, which had made a name for itself in the streaming space for live-event delivery.
AT&T acquired TimeWarner to create WarnerMedia and roll out subscription video on demand challenger HBO Max. Comcast acquired British satellite broadcaster Sky and launched its Peacock streaming service.
In line with this trend, the aggregation of content catalogues is expected to continue, with a number of valuable and eligible media companies, some of which already have their own subscription services, firmly in the sights of potential acquirers. The ability to combine subscriber bases also provides additional synergies.
Technology is another important factor in the media M&A market. Buyers will target companies that have leading technology for data handling and optimisation, as well as those delivering differentiated services, such as virtual reality (VR). Amazon Prime and Hulu offer some content in a VR format, and as the technology becomes more mainstream, dealmaking in this space could rise.
Another active area for media M&A is the news segment. In June, BuzzFeed announced it would become a publicly listed company via a merger with 890 5th Avenue Partners, Inc. a publicly-traded special purpose acquisition company (SPAC), in a deal which values it at approximately $1.5bn.
Local news in the US has also seen a glut of M&A deals. Hedge fund Alden Global Capital completed its $633m acquisition of Tribune Publishing, which makes it the second-largest local news publisher in the country. Gray Television bought Meredith Corporation’s local media assets, comprising 17 TV stations, for $2.7bn.
According to Ciesco, private equity investors are also poised to make acquisitions in the media space. Some report that their highest-priority objective in 2021 is to deploy capital on new platforms, and add-ons to existing platforms.
The global media landscape has been in a state of flux for some time, but the COVID-19 pandemic has fuelled upheaval and created opportunities for acquirers. Post-pandemic, dealmaking may become box office.
© Financier Worldwide
BY
Richard Summerfield