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This story first appeared in the April 24 issue of The Hollywood Reporter magazine.
Rupert Murdoch‘s foiled $80 billion takeover of Time Warner last summer and Comcast’s ongoing but stressed effort to pay $45 billion for Time Warner Cable have underlined not so much the difficulties of big media mergers but the “What the hell happens now?” question.
Time Warner’s public middle finger to Murdoch and 21st Century Fox hasn’t solidified its independence so much as highlighted what a good idea a Time Warner acquisition might be and, to boot, emphasized the attractiveness of a supersize pure-play content business. Likewise, if the FCC kiboshes Comcast’s TWC deal, as seems increasingly possible, that only would mean TWC, the No. 2 U.S. cable provider, would need another partner to fortify it in an ever-more-hostile business environment, hence giving other cable companies a chance to match ambitions with Comcast. And, too, it would mean Comcast would need another way to maintain its dominance.
Perhaps never before has consolidation been so much the flavor of the month, nor has it seemed so difficult to get a taste. The table is set, but nobody’s sitting down to eat.
On one side, you have largely invulnerable companies: Disney, Fox and Comcast, ultimate winners through 30 years of consolidation and deconsolidation. On the other side, you have everyone else jockeying for position and eyeing one another as marriageable partners — though nobody, so far, is even dancing: Time Warner, Viacom, CBS, Discovery Communications, Scripps Networks, AMC Networks, Starz, Sony, Endemol, Fremantle, Lionsgate; and, in distribution, Time Warner Cable, Cox, Charter, FiOS, DirecTV and Dish Network.
A new set of assumptions frames the media M&A playing field and encourages the hookup game:
? The media business is now all about video — how you make, license, deliver and monetize it. Everything else (print, music, radio, even web), unlike during the convoluted days of horizontal integration, is another business. Pure play makes the logic of acquisition, and the operational exigencies, so much cleaner.
? Distribution and content have become firmly separate (except in the case of ever-less-meaningful theatrical release revenue for movies) and largely antagonistic businesses. There’s no myth of synergy, encouraging a balance-of-power strategy: Big negotiates best with big.
? The rapid fracturing of distribution through over-the-top services, set-top options, mobile apps and cloud delivery means a new and unstable fight for dominance — not an unbundling, as digital promoters would have it, but a rebundling. Autonomous a la carte cloud-based services are an unlikely outcome; rather, more likely, someone with cloud-based technology, set-top- box functionality or broadband ubiquity will build a dominant streaming platform — a Spotify for television. In other words, be prepared for the next leviathan (as likely, a bigger version of an existing leviathan).
? The more content you own — or, that is, the more sought-after content you own — the stronger you are in a morphing distribution world.
? Everyone needs a hedge against advertising — in other words, the heft to negotiate higher licensing fees.
But then there are the complicating circumstances standing in the way of what seems like impending merger mania:
? The market, anticipating content’s consolidation and noting its growing strength, has made content companies too expensive — the key reason for the failure of the Fox/Time Warner deal.
? Distribution dominance is a battle between digital behemoths and cable behemoths, with the former (Google, Yahoo, Facebook), under the Obama administration, commanding enhanced political sway — hence, uneasy lies the Comcast-TWC deal. (A new administration easily could take back digital’s advantage.)
There is, too, a complicated psychology about mergers in the media industry, the 20-year rush to consolidate that began during the 1980s and ended in the effort of the past 10 years to deconsolidate. Indeed, Time Warner and CBS, having benefited from strategic spinoffs (Time Warner spun off its music, publishing, cable and AOL divisions; CBS was spun off from Sumner Redstone‘s Viacom), are poster children for the virtues of streamlined businesses. Yet the industry leaders — Disney (which bought ABC, ESPN, Pixar, Marvel and Lucasfilm), Fox (which acquired nearly everything it owns) and Comcast (a result of the great cable rollup) — are products of much-derided consolidation. Consolidation has a bad name, but it remains the most basic impulse of the media business.
While a new merger era might seem set to repeat many mistakes of the past in that endless business loop of consolidation, deconsolidation and reconsolidation, this new period also is something of a corrective to the first age. Then, all media was combined under a single umbrella of disparate businesses linked because they were supported by advertising. This new view sees the world as made up only of television, a product never before in such high demand. Hence the theory: If you harness greater demand, it will give you greater leverage to face new competitors and uncertain business models.
Because this is media, there also is the mogul factor — business strategy ever joined to a game of thrones.
Redstone’s control position has held CBS and Viacom largely in check for nearly a decade. The exit of the 91-year-old, without clear interest on the part of his family in continuing to run and build the company, likely puts those assets into play. Indeed, many scenarios of play: one or another of his businesses sold; one or another able to acquire; a sale of parts to multiple bidders.
At 84, an active Murdoch believes doubling down on his television position — thus his bid for Time Warner — will help his family, with three of his children vying for leadership roles at Fox, keep control of the company he built. Hence, now the rumblings in certain quarters of his interest in Viacom.
Disney CEO Robert Iger — the model of this generation’s manager-mogul — has become, with Disney’s ever-stronger performance (thank you, ESPN) as the industry’s largest company, perhaps the most respected figure in the media business and has made Disney everyone’s first-choice buyer. And because ESPN gives Disney ultimate negotiating clout with cable systems, nearly every cable programmer is of interest to it (if you’re betting, Discovery).
Time Warner’s Jeff Bewkes, even having thwarted Murdoch, is seen, by strategy and temperament, as a seller — either of the whole company, sooner or later, or, as he has done throughout his CEO tenure, the pieces: Turner, Warner Bros., CNN, HBO.
CBS Corp.’s Leslie Moonves is a new old-style golden-gut TV mogul, an industry and Wall Street darling. Freed from Redstone’s control, he likely is a buyer. A CBS-Time Warner merger, creating a $100 billion network-cable (CBS and Turner), news (CBS News and CNN) and pay TV (HBO and Showtime) giant, with Bewkes as chairman (kicked upstairs) and Moonves as CEO, is the sort of dream for which Wall Street lives.
Liberty’s John Malone, the cable grandee and asset trader, has maintained myriad interests in media companies (Discovery, Charter, Starz) as though waiting for the next moment of dramatic consolidation. One thing can be sure: He is a buyer, uniting Charter with Time Warner Cable (and Cox? FiOS?), Discovery with Viacom, Starz with Lionsgate (and Sony? Endemol? Fremantle?); or a seller, waiting to trade assets in the heat of a market for which he is becoming one of the leading stalking horses.
In some sense, this next wave of consolidation, having yet to begin but seemingly inevitable, promises not only to realign power but also to redefine the media business. The business in this new view isn’t media as a whole — it’s television. And it really isn’t television — it’s a type of polymorphous premium video, able to adapt to and advantageously monetize new behaviors and outlets known and unknown.
Michael Wolff writes about the media business and is the author of ‘Television Is the New Television: The Unexpected Triumph of Old Media in the Digital Age,’ out in June from Penguin.
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