Analysts are eyeing the next mega-merger in the media amid for-profit in 2023

Where is the next big media merger?

Fueled by falling stock prices, debt-ridden balance sheets, increased competition and a renewed focus on profitability, media and entertainment companies are rethinking their portfolios as market observers expect more merger activity in 2023.

“It’s a pretty good inflection point,” Jon Christian, EVP of digital media supply chain at Qvest, the largest media and entertainment-focused consulting firm, told Yahoo Finance. “The game has changed. It used to be just subscribers at all costs… but now [investors] need these services to be profitable.”

Bart Spiegel, partner of global entertainment and media deals at PwC added: “We are entering a chapter two of the streaming wars.”

“Only time will tell, but I think everything is on the table to try and improve profitability and make the platforms more creative for their overall business,” he continued.

Deal volumes and values ​​in the media and telecommunications sector have slowed in 2022 from last year’s record, according to PwC’s semi-annual US Deals Outlook.

In the past 12 months ending November, there have been 3,772 deals – down 26% year-over-year – with an announced deal value totaling $624 billion, down 18% from 2021.

The company attributed the slowdown to higher interest rates and inflation, coupled with rising geopolitical tensions and regulatory scrutiny.

The recent FTC antitrust suit against Microsoft (MSFT) and its $69 billion acquisition of “Call of Duty” publisher Activision Blizzard (ATVI) and Paramount’s (PARA) blocked sale of Simon and Schuster serve as the latest examples of this more combative regulations.

The Microsoft-Activision deal, along with Elon Musk’s $44 billion Twitter acquisition, were the two largest deals announced in the media and telecom space this year.

The report included all deals announced in 2022 – regardless of whether or not they are closed. Amazon’s $8.5 billion acquisition of MGM and WarnerMedia’s $43 billion merger with Discovery didn’t count toward this year’s total, as they were announced before 2022.

‘Consolidation will happen’

Paramount CEO Bob Bakish doubled consolidation, more M&A coverage in the media

Paramount CEO Bob Bakish doubled consolidation, more M&A coverage in the media

Amid this changing landscape, media executives have been touting merger and consolidation opportunities.

Paramount CEO Bob Bakish recently revealed at a UBS media conference earlier this month: “Consolidation has long been the rule in business, certainly the rule in the media. So it’s hard for me to bet on anything other than that there will be consolidation in the future.”

Jason Kilar, former CEO of WarnerMedia and the founding CEO of Hulu, wrote in a Wall Street Journal op-ed published earlier this month that he expects “two or three major mergers and/or acquisitions involving entertainment companies in the next 24 months”. cash flow challenges are increasing.

Streaming losses have increased in recent years as the cost of content has skyrocketed.

Disney’s direct-to-consumer division (DIS) lost a staggering $4 billion in fiscal year 2022, which ended Oct. 1, while Paramount’s managed streaming losses would total about $1.8 billion this year — higher than Wall Street expectations.

Warner Bros. Discovery (WBD), which has halved its market cap amid its messy restructuring efforts, reported negative free cash flow of $192 million in the third quarter, compared to $705 million the year before. The company now plans to take on $3.5 billion in content impairment and development write-offs by 2024.

As WBD struggles for direction, many industry insiders think the embattled company will sell again, making it a possible takeover target in 2023 and beyond.

Another asset to the sale is Lionsgate’s film and TV studio, which the entertainment giant plans to spin off into a separate company, while AMC Networks (AMCX) is going through a restructuring that could result in a sale.

Needham’s Laura Martin wrote in a recent customer post that Paramount could be attractive to unload, while smaller players like WWE (WWE), Curiosity Stream (CURIW), and Chicken Soup for the Soul (CSSE) are likely to sell due to their size.

Disney CEO Bob Iger will also face a slew of decisions, including what to do with notable assets like Hulu (sell to Comcast?) and ESPN (split off?).

Disney's Chief Executive Officer Bob Iger speaks at the Bloomberg Global Business Forum in New York City, New York, U.S., September 25, 2019. REUTERS/Shannon Stapleton

Disney’s Chief Executive Officer Bob Iger speaks at the Bloomberg Global Business Forum in New York City, New York, U.S., September 25, 2019. REUTERS/Shannon Stapleton

“There will certainly be assets for sale in the market,” said Mary Ann Halford, a partner at Altman Solon. “The bigger question is, what are we seeing coming out of the very large media companies? And we’ve also seen the tech giants have been quite slow to pick up on these assets.”

Turning to the tech giant Amazon (AMZN), Amazon CEO Andy Jassy said in an interview at The New York Times Dealbook Summit last month: “I think over time we have opportunities to move from our Prime Video activities into a stand-alone company with a very attractive economy.”

“Customers like to go to one place and find everything they want, they don’t want to go to 5 or 6 different places,” Jassy said.

What will drive mergers and acquisitions?

PwC noted that demand for live sports, including sports-related industries such as sports betting, is likely to drive future mergers and acquisitions.

“There is so much money in sports and getting live sports on the streaming platforms is an area that is still not being fully exploited,” said Qvest’s Christian. “The question is, can they pencil it in? Because the price is so high for the content. Will they now be able to get the subscribers needed to be profitable in that industry?”

Spiegel agreed that rising content costs are likely to put pressure on future dealmaking, though more disciplined content spending could force platforms to work together to offset production risks.

HOUSTON, TX - NOVEMBER 03: Amazon Thursday Night Football Analysts: Tony Gonzalez, Charissa Thompson, Ryan Fitzpatrick, Andrew Whitworth and Richard Sherman prepare for a pregame live taping for the football game between the Philadelphia Eagles and Houston Texans at the NRG Stadium in November December 3, 2022 in Houston, Texas.  (Photo by Ken Murray/Icon Sportswire via Getty Images)

Amazon Thursday Night Football analysts prepare for a pregame live taping for the football game between the Philadelphia Eagles and Houston Texans at NRG Stadium on November 3, 2022 in Houston, TX. (Photo by Ken Murray/Icon Sportswire via Getty Images)

Other M&A opportunities could lie in movie theaters, as box office ticket sales struggle to reach pre-pandemic levels, and video games, which offer lucrative monetization opportunities through franchise intellectual property (IP).

“Many of these media companies rely on their existing IP to monetize the market across regions and windows, rather than investing heavily and creating new IP,” Spiegel said, citing profitability concerns. “More traditional video game companies have that IP address [and] also have the engines and technologies that help with content creation.”

Overall, however, the biggest M&A opportunity will be content, especially as consumers become pickier with their subscriptions.

“Content and IP will always be attractive because there’s not only a direct opportunity to monetize that existing content, IP or library, but also the tangential opportunities to monetize through sequels or other types of storylines,” Spiegel said.

“You can watch so many different things, but you have to have quality content,” added Christian. “Content will always be king.”

‘It’s a difficult world for financing’

As recession concerns weigh on investor sentiment heading into the new year, PwC predicted a negative impact on valuations.

“It’s a difficult world to finance like this [private equity] is now more on the sidelines,” Spiegel said.

“There will likely be a gap between what sellers expect for the valuation of their properties versus what buyers are willing to pay because you have a smaller pool of buyers and access to financing is much more expensive,” he said.

Still, “I do expect private equity to return — they’re sitting on a significant amount of dry powder, but we just have to wait for the markets to get back in their favour.”

Altman Solon’s Halford added higher interest rates will fuel macro challenges after the Federal Reserve delivers investors its seventh and final rate hike of 2022.

“If people want to buy something with equity and debt, the interest rate environment is definitely a headwind,” Halford said.

However, Halford said there will still be assets for sale next year, even with these challenges: “Wall Street is moving forward [these companies’] tails.”

Alexandra is a Senior Entertainment and Media Reporter at Yahoo Finance. Follow her on Twitter @alliecanal8193 and email her at

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