Title: The Media Industry’s Dilemma: Consolidation or Regulation?
Introduction:
The media and entertainment industry is facing a crucial question that will shape its future: Do big media and technology companies want to acquire smaller rivals for their content but can’t due to strict regulations, or are they simply uninterested in these assets? This article examines the perspectives of Comcast CEO Brian Roberts and Warner Bros. Discovery CEO David Zaslav, shedding light on the industry’s predicament.
Regulation as a Deterrent:
According to Zaslav, the government’s stringent regulations have scared potential buyers away from media assets. He believes that the industry needs deregulation to allow for consolidation and foster growth. Zaslav’s viewpoint aligns with many legacy media executives who share the same sentiment. However, it remains unclear whether the largest media and technology companies are avoiding acquisitions due to regulatory hurdles or simply lack interest in these assets.
Limited Interest in Media Assets:
The limited interest from major media and tech players in acquiring media assets is evident in the recent sale of Paramount Global. Controlling shareholder Shari Redstone struggled to attract big players, eventually settling on a deal with Skydance Media, a smaller studio. Similarly, companies like Starz, AMC Networks, and Vice Media have also found it challenging to find deep-pocketed buyers.
Reasons Behind Limited Interest:
Rob Kindler, global chair of M&A at law firm Paul, Weiss, suggests two plausible explanations for the lack of interest. Companies may either not want the assets or have deemed the regulatory hurdles too high. The media industry requires more clarity and deregulation to determine if technology and major entertainment companies have indeed abandoned significant media acquisitions due to red tape surrounding antitrust, national security, and outdated communications rules.
Consolidation as a Lifeline:
David Zaslav’s perspective on deregulation and consolidation is vital not just for Warner Bros. Discovery but for all legacy media companies that are not Apple, Google, or Amazon. Zaslav believes that consolidation is the only way forward for the industry, emphasizing the need for larger companies to acquire smaller ones. His message may resonate with politicians seeking to preserve local news and limit the power of big tech.
Mixed Results of Media Mergers:
While Zaslav’s argument holds weight, it is important to note that big media mergers have not yielded favorable results for shareholders. Recent mergers, such as Discovery’s acquisition of Scripps Networks Interactive and AT&T’s acquisition of Time Warner, have burdened companies with significant debt. Viacom’s merger with CBS, Disney’s acquisition of Fox’s assets, and Comcast’s purchase of Sky have all faced challenges, and their market capitalizations have suffered as a result.
Strategic Decisions and Poor Performance:
The media industry’s poor performance after mergers may also be attributed to strategic decisions made by leadership. Media companies pivoted to streaming, investing billions in new content, only to reverse course as investors stopped rewarding unprofitable subscription growth. This volatility has added to the challenges faced by media companies.
Regulatory Concerns:
Executives in the industry are undoubtedly concerned about regulatory scrutiny. The shift toward seeking legal advice before pursuing deals reflects this apprehension. While there have been mixed results under both Republican and Democratic administrations, the regulatory environment remains hazy. The future regulatory philosophies of potential presidential candidates, such as Kamala Harris, will be of interest to the business community.
Fear vs. Reality:
Mark Boidman, head of global media at Solomon Partners, suggests that Zaslav’s fear of regulatory hurdles may be exaggerated. Despite a perceived increase in regulatory scrutiny, media deals are still being completed, both on a small and large scale. Data from the FTC shows that the number of enforcement actions resulting in changes or cancellations of mergers has not significantly increased. However, the volume of larger media deals has noticeably declined.
Conclusion:
The media industry finds itself at a crossroads, torn between the desire for consolidation and the challenges posed by regulatory hurdles. While regulatory concerns are valid, it is essential to evaluate the industry’s performance post-mergers and consider strategic decisions made by leadership. The future of the media and entertainment industry hinges on finding a balance between consolidation and regulation, ensuring sustainable growth and profitability.
