Media Deals and Scale

In recent weeks the business press and the three business oriented cable channels in the
U.S. have been buzzing about possible mega-media buyouts of famous names.

The most prominent has been 21st Century Fox selling part of its asset base to Disney. Why would they want to do that?

Well, their entertainment business is not overly profitable as most movie studios are not. They appear to want to keep their broadcast network, Fox Sports, and Fox News and Fox Business. Why would Disney want their movie studio, perhaps FX and a few other properties? Soon, Disney will launch their own exclusive streaming service. They could use the huge backlog of films that Fox has in their library. If Disney wishes to take on Netflix, they need lots and lots of content. Some things they cannot buy from Fox. Disney owns ABC so the Fox Network is off limits legally. Given that they own ESPN, Fox Sports is a non-starter as well.

The issue that many talk about regarding the the legacy media companies is that they lack “scale”.  In today’s world, bigger is invariably better (with very few exceptions) and “content is still king” proving that Sumner Redstone was right about 30 years ago when that term was attributed to him. Speaking of Redstone, how much longer is CBS viable as an independent entity? For decades, CBS was “The Tiffany Network” that dominated the Nielsens most years and made executives and shareholders a fortune. They still have an impressive lineup of assets including everything with a CBS in front of the name plus Showtime, CW, Smithsonian Channel, and Simon and Shuster among others. Yet, they are increasingly becoming a small player in the scheme of future media. Their market capitalization as I write is $22.6 billion. Impressive compared to thousands of publicly traded companies. Yet, according to both The Wall Street Journal and CNN, Apple has $262 billion in cash parked overseas. So, technically, they could purchase CBS whole without effecting their cash on hand much and with no debt.

We live in an unusual era where the greatest companies that have ever existed are literally busting with cash. In addition to Apple, Alphabet (Google), Amazon, and Facebook all in the position of buying out almost anyone. So, what does all of this mean? To me, Disney is doing the right thing to possibly buy portions of Fox simply to stay viable in our brave new world of media. CBS does not appear long for this world. In recent weeks, both Apple and Facebook have announced that they will be producing original video content. This has to make Netflix a bit nervous as these monsters may lose a few billion a year on their video ventures for a long time and never run out of funds. Also, Alphabet has never fully monetized You Tube although they appear to be making small steps in that direction.

One thing few people are talking about is that with more players such as Apple and Facebook getting in to creating content (likely without commercials), this has to be another body blow to advertiser supported TV. There are only so many hours in the day and Netflix, Amazon Prime Video as well as non-commercial stalwart HBO continue to grow. When viewers are given more options from Apple, Facebook and YouTube, TV, as we know it, has to suffer.

My forecast is not particularly prescient or brave—the ultra big will only get bigger and legacy media companies will likely have to sell out fairly soon to survive.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com