Media Mergers: Who’s Next?

In this photo illustration, the HBO Max and Discovery Communications logo seen on a smartphone.

Rafael Henrique | LightRocket | fake images

NBCUniversal and Lionsgate

Buying Lionsgate would help Comcast’s NBCUniversal on two different fronts. First, I would add more content to Peacock, NBCUniversal’s video subscription service. Lionsgate has shows that include “Mad Men,” “Orange is the New Black,” “Nashville,” and “Zoey’s Extraordinary Playlist.” Lionsgate is currently licensing those shows to a streaming service grab bag.

Second, Lionsgate owns the Starz premium network, which would fit in perfectly with NBCUniversal’s offerings. NBCUniversal does not have a premium network, unlike competitors WarnerMedia (HBO) and ViacomCBS (Showtime).

On the streaming front, a Starz-Peacock combination, either together as a service or separately as a combined offering, could expand NBCUniversal’s global aspirations. Starz is on track to have 60 million global subscribers by 2025, CEO John Feltheimer said this week. Starz is already available in 58 different countries, giving Peacock an edge in its expansion aspirations.

And Lionsgate wouldn’t cost much, with a market capitalization of just $ 3.8 billion (an enterprise value of about $ 6.4 billion). If Comcast is going to keep NBCUniversal, opposing AT & T’s decision to forego vertical integration, buying Lionsgate would be a sensible move to stay competitive in broadcast wars without breaking the bank.

WarnerMedia-Discovery and ViacomCBS

There is already speculation about a possible future merger between the newly created WarnerMedia-Discovery entity (assuming the deal closes) and NBCUniversal. Discovery’s controlling shareholder, John Malone, told CNBC how the combined company could be open to a future merger with NBCUniversal if regulatory forces allowed it.

But the divestitures that could take place could be too complicated and fiscally ineffective for that combination to occur. Regulators may not allow CNN and MSNBC to be housed under one corporate roof. The combination of Comcast’s Universal and WarnerMedia’s Warner Bros., the No. 2 and No. 3 movie studios by box office revenue in 2019 and 2018, the last full years of theatrical releases, may also be a flop.

The most logical combination would be WarnerMedia-Discovery and ViacomCBS.

Shari Redstone’s company has a broadcast network: CBS. WarnerMedia-Discovery doesn’t, so it fits. (The combination of CBS and NBC under one roof would be a major stumbling block to a ViacomCBS-NBCUniversal merger.)

Unlike NBCUniversal, ViacomCBS does not have a large cable news network. That makes keeping CNN more viable.

While ViacomCBS also owns a movie studio, Paramount has had a much smaller box office presence than Universal in recent years. Among global movie studios, Paramount ranked sixth in box office revenue in both 2018 and 2019. Joining Paramount and Warner Bros. would be an easier sell for antitrust concerns.

The biggest complication would be whether Redstone is willing to divest or dilute its controlling shares of ViacomCBS. That’s what Malone did to bring Discovery and WarnerMedia together, so now there’s a template.

Disney and AMC Networks

This is the hardest sale. Disney doesn’t really need AMC Networks. It is working perfectly fine with the content you have.

But with the Disney-owned Hulu license, much of its content, it’s vulnerable to losing some of its hit shows. MGM, for example, does “The Handmaid’s Tale.” Now that Amazon has acquired MGM, it is unclear if the series will remain on Hulu once the deal closes.

The owner of “The Walking Dead,” IFC Films and Sundance Now could provide a boost of adult-themed content to Hulu. That would balance the solid offering for kids on Disney + and sports on ESPN +. AMC has predicted it will have at least 9 million streaming subscribers by the end of 2021 and 25 million by the end of 2025. That’s a far cry from Hulu’s current 41.6 million or Disney +’s 103.6 million, but it is evidence that there is at least some audience for the programming.

And while cable is slowly dying, it is not dead yet, with about 85 million American households still subscribing to some form of integrated linear TV.

Disney’s ESPN remains the lifeblood of the traditional pay TV package. Combining AMC Networks’ cable networks with ESPN would protect affiliate rates, as pay-TV providers have always been reluctant to do away with ESPN.

The Dolan family controls AMC Networks. The Dolan’s have likely known for years that AMC Networks is subscale and should be paired with a larger media fish. If the Dolans don’t want to sell, they won’t. But AMC Networks is relatively small at $ 2.2 billion in market valuation and about $ 4 billion in business value. Disney could easily buy the company for cash.

However, previous acquisitions of Disney, Pixar, Marvel, Lucas Films, have been for intellectual property. Does AMC Networks have enough valuable IP to make a deal worthwhile for shareholders? And is that intellectual property family-friendly enough to fit in with the company’s theme park business?

That may be the reason why an agreement between Disney and AMC has yet to be finalized.

Divulge: NBCUniversal is the parent company of CNBC.

LOOK: Amazon’s MGM Acquisition Will Give Prime Users Additional Value: Mark Mahaney

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