TPG Capital Has Invested Billions in Media, Is It Paying Off?

Illustrations by Koren Shadmi

The private equity firm backs CAA, Vice, Spotify, STX and even Cirque du Soleil, a massive bet on diverse entertainment holdings.

Shortly after TPG made its initial investment in CAA in 2010, Jim Coulter, the Texas investment firm's co-CEO, attended the talent agency's all-hands retreat in Carlsbad, California. In his 20 years of investing, Coulter had been to countless such gatherings, but after hearing CAA's presentations, Coulter was convinced he had invested in one of the most influential businesses not only in Hollywood, but maybe in the world, people familiar with the meeting recall.

The CAA investment was notable as TPG's coming-out party in Hollywood, and it since has become arguably the premier private investor in media and entertainment, its nearest rivals being Japanese conglomerate Softbank and Silver Lake, the firm that backs CAA competitor WME by way of its major stake in Endeavor Group.

Since 2010, TPG not only increased its stake in CAA to 53 percent, but it also has plowed money into digital music (Spotify), mobile gaming (Scopely), ticketing (BookMyShow), payroll services (Entertainment Partners), sports media (The Athletic), live entertainment (Cirque du Soleil) and more. In 2016, it paid $1.6 billion for RCN and $650 million for Grande Communications Networks, combined them to create a top 10 U.S. cable company and, within a year, investments from outsiders caused the merged entity to double in value.

Still, there's a perception among some in Hollywood that TPG, which has invested more than $100 billion in a variety of sectors, is stumbling when it comes to media and entertainment. These observers cite STX Entertainment, which TPG launched in 2014 with producer Robert Simonds, along with Vice Media, where a $450 million investment in 2017 valued the troubled millennial-focused firm at a rich $5.7 billion. And even, to a lesser extent, CAA, which, given the canceled IPO of Endeavor on Sept. 27, won't being going public anytime soon — as some insiders had hoped.

"For sure, the Endeavor failure to complete an IPO raises doubts about the CAA stake's value, and in the wake of the withdrawn IPO, the CAA valuation must be lower than it had been," says Hal Vogel, author of Entertainment Industry Economics: A Guide to Financial Analysis. But others say CAA has been a hit for TPG, given its estimated value of up to $2.5 billion is four times what it was valued at in 2010 and more than twice what it was worth when TPG paid about $225 million in 2014 to up its position to a majority stake. Industry rumors that TPG is shopping its CAA stake are false, say insiders.

"We chose TPG over other investors because Coulter, David Bonderman, David Trujillo and the other partners were more like-minded. They help us when we need help, but otherwise they leave us alone," says CAA co-chairman Bryan Lourd. "It's about the character of the people you work with, and we really like Coulter. We have never seen him make bad decisions for individuals or businesses based on a need to exit or flip, which was a concern with private equity when we went into this. But it's been the opposite — they don't want to leave; they remain interested and engaged."

As for Vice, the company has been mired in layoffs to save cash and the departure of key executives amid accusations of sexual misconduct. And in May, Disney disclosed a $353 million write-down on its investment in the media company. Still, there are signs that Vice is on the mend, and one insider says, "The jury is still out" as to whether investors will make a profit. Vice said Oct. 2 that it agreed to acquire female-focused Refinery29, arguably in hopes that the merged firm might be worth a reported $4 billion. Vice also has a production deal with Hulu and Showtime, which will revive a docuseries that was canceled by HBO.

"TPG has been very supportive of our operational and strategic pivots," says Vice chief strategy officer Hozefa Lokhandwala, who speaks regularly with Trujillo, the TPG partner and a Vice board member. While Vice's valuation may have slid about $2 billion since TPG's investment, those with knowledge of the deal say TPG is largely protected from loss because its deal is structured with preferred shares and debt. If Vice is sold, TPG is entitled to its investment plus 10 percent interest annually before equity holders are paid anything, these people say.

That leaves STX as the problem child. The studio debuted its first film, The Gift, in 2015 and the $5 million thriller earned a respectable $59 million worldwide. The plan was for about 10 midbudget movies a year. A string of lackluster titles followed, including May's UglyDolls ($31 million globally) and the cheerleader comedy Poms ($13 million), then more bad publicity hit when Bill McGlashan, an STX co-founder and executive at TPG Growth, an offshoot of the parent company, left both after he was accused by the feds of cheating to get his son into USC. McGlashan had helped drive TPG's Hollywood efforts, and started The Rise Fund in 2016 with U2's Bono and Participant Media founder Jeff Skoll to invest in "companies driving measurable and social and environmental impact," and it has $4 billion under management.

In October 2018, STX dropped plans to raise as much as $500 million in an IPO that would have listed its shares on the Hong Kong Stock Exchange and valued the firm at about $3 billion. But it's too early to write off STX, some insiders say, as Hustlers made $100 million at the worldwide box office this year on a $20 million budget, plus the company has launched a TV business with deals to supply content to streamers Amazon Prime Video, Netflix and Quibi. Simonds cited a weak Asian market for media companies and volatile political conditions for the IPO miss. STX reportedly has $300 million available on a credit facility and in March it sold another $100 million in equity. Whether this is sufficient to say STX is in the midst of a turnaround is anyone's guess, but if STX fails, it won't deter TPG from taking its shots in the sector. "The perception that TPG stumbled in media would come from people who don't understand TPG or don't understand investing," says a TPG insider.

STX investors over the past five years include Hony, Tencent, PCCW and Liberty Global, and negotiations for more backing from investors worldwide are underway. "Media can be extremely rewarding investments, yet they also can be more challenging," says analyst Jimmy Schaeffler of The Carmel Group, adding: "The sexiness gets in the way, and many risks will be losses. But look at Disney: One or two big wins carry the stock and investment outlook forward for quarters at a time. That's where TPG is now. A little bit more work needs to go into getting a bit luckier."

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TPG’S PLAYS

2010

→ Takes 35 percent stake in CAA, creates $500M TPG-CAA co-venture fund.

2014

→ Launches STX Entertainment with producer Robert Simonds.
→ Pays about $225M to up its stake in CAA to a majority 53 percent.

2015

→ Leads a $186M investment in learning company Lynda.com.
→ Acquires a majority stake in Cirque du Soleil.

2016

→ Spotify raises $1B in debt from TPG and others.
→ Pays $1.6B for RCN and $650M for Grande Communications Networks and combines them.

2017

→ Invests $450 million in Vice Media.

2018

→ Leads a $100M investment in Bigtree Entertainment, operator of ticket distributor BookMyShow.
→ Invests $20M in sports media brand The Athletic.
→ Invests $15M in media company ATTN.
→ Participates in an $80M investment in online educator MasterClass.

2019

→ Becomes majority owner of Graydon Carter’s Air Mail newsletter.
→ Acquires Entertainment Partners, a leading payroll services company.
→ Leads an $88M round in wellness brand Calm.

This story first appeared in the Oct. 9 issue of The Hollywood Reporter magazine. To receive the magazine, click here to subscribe.