When Amazon agreed earlier this year to spend $8.6 billion on MGM, media bankers popped champagne. The bankers, always eager to marry buyer and seller — and take a cut from both — saw an opening for a new flurry of deals.
Just take a look at these headlines over the past few weeks:
Hello Sunshine, Reese Witherspoon’s production company, is exploring a sale and seeking $1 billion.
SpringHill Entertainment, LeBron James’ production company, is exploring a sale and wants $750 million.
A24, the boutique studio, explored a sale for $3 billion.
That doesn’t even factor in whatever might happen with larger companies such as ViacomCBS, NBCUniversal, or Lions Gate.
None of these efforts to sell started after the MGM deal. Conversations have happened for months, if not years in the case of A24. But the MGM deal was the single best thing that could have happened to other entertainment businesses looking to sell themselves.
It raised the value of any company that could credibly claim to own a library (like A24) or have some production chops (like SpringHill and Hello Sunshine). It also signaled Amazon’s growing investment in Hollywood, a threat that could entice (or scare) other large companies into splurging as well.
There are two things to keep in mind about these recent headlines. The prices don’t make any sense on paper. And the price may not matter to the potential acquirers.
Let’s start with the prices. Analysts and investors typically value a company based on some multiple of its earnings. That multiple varies based on the sector and the stage of the company. AT&T paid $85 billion for WarnerMedia based on its earnings, while Disney based its acquisition of assets from Fox on their projected boost to its bottom line (at least in part).
With younger companies, valuations are often based on revenue, user growth, or general confidence in their upward trajectory. Think of Facebook buying Instagram and Google buying YouTube. Neither Instagram nor YouTube made any money when they were acquired, but the companies buying them were very confident they would. (Spoiler: They were right.) There are a lot of examples of this not working. See: Yahoo buying Tumblr, Disney bought Maker Studios, et al.
The valuations for Hello Sunshine or SpringHill are not based on either of these factors. They might be loosely inspired by earnings, of course. But there is no traditional financial model where companies that make a handful of TV shows – few if any of which they own outright — are worth that much money.
Lest you think companies like Apple or Nike will just light money on fire, keep in mind that their targets do have something else in common. They have famous founders. Witherspoon has transformed from actress into a mini-mogul, overseeing a clothing line, a production company, and even a book club. James is the most famous basketball player on earth, able to get in the room with anyone at any time.
When you are buying Hello Sunshine or SpringHill, you aren’t just buying the company. You are buying the founder and hoping their celebrity and relationships will benefit you in some way a spreadsheet can’t calculate. Both Witherspoon and James also allow companies run by a bunch of white dudes to bring in a famous person who is not a White dude.
While A24 doesn’t have a famous face, it does have a recognizable brand. It is one of the only film studios on earth that has a devoted audience, and that too has some value. Is it $3 billion worth of value? Most professionals would say no but then think of the buyer…
Apple, which has talked to A24 and Hello Sunshine, is a Hollywood neophyte worth more than $2 trillion. It could buy A24 and Hello Sunshine with a week’s worth of iPhone sales. The question for a company like Apple is not whether it’s worth spending $1 billion or $3 billion on a studio. Apple has to decide what it wants to do in Hollywood. Buying either company would, in theory, enhance its ability to attract talent, produce shows, or… something.
Buying any kind of production company or studio would signal its intentions in TV, much as buying Beats Electronics did in music.
Nike, like Apple, isn’t talking to SpringHill to boost its earnings in the third quarter but for an intangible boost to its brand from proximity to talent. It would buy Springhill to cement its partnership with James and offer a new outlet to the growing throng of athletes who want to make movies and TV shows. SpringHill becomes Nike’s way to remain attractive to its customers and its partners.
These are potential buyers that have deep pockets and don’t view entertainment as their main business. (Much like Amazon.) That’s a good recipe for a head-scratching deal, especially if you can create the appearance of a market.
There are several media companies all looking for an edge in the streaming wars, and then there’s an eager beaver in former Disney executives Kevin Mayer and Tom Staggs. They have spent months shopping for media companies. They explored a deal for Scooter Braun’s management company Ithaca Holdings, which sold to a South Korean company. They explored a deal for Propagate, the producer of “Chopped,” but those talks foundered. And they have talked with Imagine Entertainment, the producer of “Empire” and “Genius.”
If any of these deals come to fruition, it won’t just be bankers that are happy. Every other celebrity with their own production company will see dollars signs in their future. — Lucas Shaw
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Spotify’s Top Lawyer Has Spent Years Making Apple the Bad Guy
Horacio Gutierrez has done more than almost anyone to push the narrative of the iPhone maker as an abusive monopolist.
Mogul, Season 3
I spent a lot more time listening than reading this week, and it all started with Gimlet’s latest podcast.
Netflix Moves Into Gaming
Netflix is going to start offering video games on its service in the next year, per a little scoop from Mark Gurman and your author this week:
Mike Verdu will join Netflix as vice president of game development, reporting to Chief Operating Officer Greg Peters. Verdu was previously Facebook’s vice president in charge of working with developers to bring games and other content to Oculus virtual-reality headsets.
The games will appear alongside current fare as a new programming genre — similar to what Netflix did with documentaries or stand-up specials. The company doesn’t currently plan to charge extra for the content.
What to make of this? Well, Netflix has made no secret of its interest in video games, which it sees as both a competitive threat (for attention) and opportunity. Its plans are still in early stages, but it’s important to note that entertainment companies have a checkered history making their own video games.
Speaking of Netflix…
The company reports financial results for its second quarter on Tuesday. Netflix projected it would add just 1 million subscribers as it continues to feel the effects of society reopening.
I will write more on them next week, but two data points to keep in mind for the time being.
Netflix’s share of global demand for original series on the internet fell below 50% for the first time, per Parrot Analytics.
But its share of total viewing in the U.S. rose to 7% in June, up 1% from the month prior, per Nielsen.
Facebook Woos Creators
Facebook is going to pay creators $1 billion by the end of 2022, an investment designed to entice more social media influencers to post to Facebook and Instagram. Creators can earn money by using certain features, or hitting certain milestones, according to Taylor Lorenz.
TikTok, YouTube, and Snap also offer creators cash to post (on top of the money they can get from brand deals or advertising). So this isn’t exactly a groundbreaking idea.
Facebook/Instagram has never nurtured its own class of creators in the same way that YouTube and TikTok have. The most popular accounts on those platforms are, by and large, the most famous celebrities. (The same goes for Twitter.)
Will $1 billion change that? My guess is most creators would rather Facebook improve the monetization tools that can compensate them for posts and videos (something that works quite well on YouTube).
The best-selling album of the year (so far) is…
Morgan Wallen’s “Dangerous.” The country act’s latest record has sold 2.1 million copies (including streaming), outpacing Olivia Rodrigo’s “Sour” for the top spot. Those are the only two albums to top 1 million in sales. This is just in the U.S., and as measured by MRC Data.
Other highlights from MRC data’s mid-year report include:
Vinyl sales doubled and outpaced CD sales in the first half of the year for the first time in decades.
Rodrigo’s “Drivers’ License” was the top song.
Taylor Swift’s “Evermore” was the top album in pure sales (no streaming).
Some other numbers…
NBA Ratings Are Way Up – From Record Lows. Viewership of the NBA Finals has climbed 34% from a year ago. The first four games of the series averaged 9.3 million viewers. Ratings are still down double digits from 2019, but the ratings have trended up in recent games.
“Space Jam” tops “Black Widow” at the box office. “Space Jam: A New Legacy” grossed $32 million, stealing the top spot at the box office from “Black Widow.” (LeBron James starred in the movie, and this performance doesn’t hurt the whole Springhill sales effort!)
The Emmys Learned From the Oscars Failures
HBO Max and Netflix led all streaming services in Emmy nominations this year, earning 130 and 129 respectively. Disney earned the most nominations of any company with 146. “The Crown” and “The Mandalorian” are tied for most of any show.
If you are interested in the rankings, I’ve got you covered here and here. But I want to make one other point… the Emmys have gone back to nominating popular shows, learning something the Oscars still haven’t figured out.
Hollywood awards show used to nominate many of the most popular movies and TV shows year in and year out. Shows like “Frasier,” “ER” and “Seinfeld” weren’t just critical darlings. They were commercial hits. The Emmys strayed away from nominating the biggest hits as cable and streaming dominated more and more of the field. For every “Modern Family,” there were wins for “Mad Men,” “Transparent” and “Schitt’s Creek.”
But shows like “The Mandalorian,” “The Boys” and “WandaVision” are big crowd-pleasers that also delight critics.
Deals, deals, deals
NBC is close to a deal with Maria Taylor, the TV host who was recently involved in a contract dispute at ESPN.
Long-time Disney PR chief Zenia Mucha – also known as the “warrior princess” of the house of a mouse — is leaving at the end of the year.
AMC Networks agreed to pay $200 million to the creator of “The Walking Dead” and his talent agency.
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