Media's hottest show in 2018: "Let's Make a Deal"
The upheaval in the media and entertainment sector, marked by several giant mergers and acquisitions this year, may spur other big deals in 2018. Leading the media M&A parade in 2017 was AT&T's (T) $84.5 billion acquisition of Time Warner (TWX) and Walt Disney's (DIS) $66.1 billion purchase of most of 21st Century Fox's (FOXA) film and TV assets.
But figuring out which companies will buy, and which will sell, depends on whether AT&T will be able to overcome Trump administration opposition to its purchase of Time Warner, the parent of Warner Bros., HBO and CNN. Disney and Fox aren't expected to encounter similar issues, though Wall Street analysts aren't discounting it entirely.
Plus, the Federal Communications Commission's recent decision to overturn net neutrality rules only adds to the confusion.
However, in a world where streaming services are on the rise and TV networks are on the decline, the message is clear: Bigger is better.
"The traditional model for media/entertainment companies slowly evolved over 75 years (with the introduction of cable in the 1980s as it's only "disruptive" event), yet the new media model has only really arisen over the past 5-10 years," Kevin Quigg, chief strategist at Exponential Funds, wrote in an email. "This means that any M&A activity in the space is inherently riskier than in the past. However, this risk is matched by the potential upside as media companies develop ways to both reach greater numbers of viewers as well as better monetize their content across different platforms."
Media mogul Rupert Murdoch surprised many observers when he sold Fox's assets, which he had spent decades acquiring, because he couldn't compete with new rivals such as Netflix (NFLX), Amazon (AMZN) and Apple (AAPL). All those newcomers are pouring many billions of dollars into the production of original content. Netflix plans to spend $8 billion in 2018 on new programming, while Amazon projects $4.5 billion and Apple around $1 billion.
Wall Street observers are focusing on Viacom (VIA.B), parent of MTV, Spike, Comedy Central and the Paramount movie and TV studio, given Viacom's struggles for years with declining TV ratings and lackluster results at the box office. Though Viacom did post viewership gains in its most recent quarter, they were offset by declines in fees pay-TV providers fork over to carry its content. That trend is expected to linger through 2018.
Some investors are pushing New York-based Viacom to merge with its corporate sibling CBS (CBS), parent of CBS News.com, but CBS CEO Les Moonves has said he isn't keen on the idea. He argues that his company is doing fine on a stand-alone basis. Shari Redstone, who controls Viacom and CBS along with her father Sumner, called off a Viacom-CBS merger in 2016, less than three months after asking both companies to study such a deal.
CBS, however, may be of interest to Verizon (VZ), according to a note to clients Merrill Lynch published earlier this year. The telcom giant has expanded into content in recent years with the acquisitions of AOL and Yahoo.
Movie and TV studio Lions Gate (LGF) is another company to watch in 2018. As Deadline recently noted, Lions Gate has been bulking up through acquisitions, including the $4.4 billion deal in 2016 for premium cable channel Starz. The Santa Monica, California-based company reportedly is eyeing parts of Weinstein Co., which is in financial distress following the sexual misconduct scandal dogging co-founder Harvey Weinstein.
Lions Gate properties, which include the hit Netflix show "Orange Is the New Black" and the iconic game show "Family Feud," would also interest potential buyers, according to Deadline.
Comcast (CMCSA), which lost out on the bidding for the Fox assets, may end "its M&A sabbatical, self-imposed in 2015 after the Time Warner Cable deal fell apart, and is ready to buy something nice for itself," according to Fierce Cable, a trade publication. Rivals Charter Communications and Cox Communications also may enter the M&A fray, the website said.
At the same time, Facebook (FB), Amazon and Apple are starting to resemble content companies.
Earlier this year. Facebook launched its Watch app, which enables users to view original content. The largest social network reportedly bid $620 million for the broadcast rights for cricket in India, where the sport has a huge following, and has said it plans to spend a few billion dollars on streaming rights for U.S. sports.
Amazon announced earlier this year that it would nearly double its investment in video and triple the amount of original content on Prime Video.
Apple has struck a deal with filmmaker Steven Spielberg to revive his "Amazing Stories" TV series. The Cupertino, California, tech giant has hired former Sony Pictures Television heads Jamie Erlicht and Zack Van Amburg to oversee its content strategy.
Apple also is sitting on the mightiest corporate cash stake in the world -- nearly $260 billion at last count, or more than 10 times the current market value of CBS and more than three times the market capitalization of Netflix.