A recent Financial Times webinar, ‘The Future of Dealmaking in Entertainment’, explored the key themes driving mergers and acquisitions (M&A) in the legacy media space. Experts who were panellists at the webinar highlighted the growing importance of intellectual property (IP) for content creation and audience engagement.
The potential for spin-offs of specific assets like cable networks was also discussed, along with the need for media companies to adapt to the mobile-first consumption habits of younger generations.
The panellists — including Rob Sherman from DLA Piper; Sherrese Clarke Soares, HarbourView; and Andre James, Bain & Co — emphasised the importance of efficient content delivery models and audience-driven strategies for achieving sustainable growth in the evolving media landscape.
James identified three key themes that will drive M&A in the legacy media space: the desire for more IP and franchises, the need for more direct-to-consumer relationships, and building capabilities in interactive media.
He said studios are looking to acquire intellectual property and franchises to fuel their creative process and at the same time, there is a growing interest in location-based entertainment (LBE) as a way to build direct-to-consumer relationships. He said video games and interactive media are seen as a high-growth and profitable space where legacy media companies can acquire capabilities to improve their storytelling.
Clarke strongly agrees with the importance of IP as a driver in the media space. She said her firm prioritises acquiring or investing in businesses that create strong content, emphasising its long-term value.
She highlighted the importance of ‘distribution-agnostic’ IP, meaning content that can be successful across multiple platforms.
Looking forward, Clarke sees the next one to two years as a prime time for investment opportunities in media. She emphasised the need to understand the evolving consumption habits of younger generations (Gen Z and Alpha) to engage them over the next 10-20 years effectively. She further said that identifying themes and IPs that resonate with these audiences will be crucial for success.
On tech companies and private equities buying out legacy media companies, Clarke believes recent valuations for legacy media companies have been inflated, considering the significant changes the industry is undergoing and as a result, expects a period of valuation correction.
She, however, said once valuations become more realistic, this creates an opportunity for investors – both private equity giants and specialised firms – to support these companies with strategic or financial capital.
“The focus will shift from prioritising revenue growth at all costs to achieving profitability. This shift in focus, along with more reasonable valuations, will pave the way for a new wave of investment in the next 12-24 months, supporting the next phase of growth for these legacy media businesses,” Clarke said.
Adding to what Clarke said, James highlighted the complexity of acquiring legacy media companies. These companies often contain a mix of outdated yet formerly profitable business models bundled together, he said.
According to him, tech companies might be less interested in acquiring the entire packages that include declining assets like cable networks. He added that similarly, private equity firms might not prioritise investing heavily in new IP development within a studio acquisition.
James suggested a potential trend of “disaggregation,” where legacy media companies are broken up and specific assets are acquired by different buyers seeking strategic value. “However, the interconnectedness of these companies’ various divisions (studios, cable networks, broadcasting, etc.) makes disentanglement a complicated process that will likely take time.”
When asked if private equities will wait for valuations to go down before the acquisitions, Sherman believes valuations for legacy media companies have likely stabilised after a period of correction. This stability, coupled with rising interest rates, is attracting more investment capital to the sector with recent media acquisitions like Apollo’s deal demonstrating this trend, he said.
He acknowledged the potential for “synergies” which is value created by combining assets – but emphasised the importance of strategic considerations which includes both “disaggregation” (breaking up companies) and “aggregation” (combining specific assets) depending on how different media businesses can complement each other in the new landscape of ad-supported and other emerging distribution models.
The goal, Sherman said, is to leverage existing media properties while developing new assets that thrive in these evolving models.
Clarke argued against further consolidation in the media industry, especially the merging of legacy companies. She believes the current focus on consolidation might not serve consumers well. Instead, what’s needed is “rationalisation” – streamlining existing businesses.
She highlighted the mismatch between legacy business models built for a bygone era and the way audiences consume content today, using YouTube TV and Amazon Prime Video as examples of how people have shifted from traditional cable to digital platforms.
“The core elements of the media industry – content creators and a hungry audience – remain strong. The challenge lies in the bloated “delivery mechanism” with its high overhead costs that create an unsustainable economic model,” Clarke said.
She called for a new paradigm that efficiently connects creators with audiences, moving beyond the limitations of existing systems.
On rationalising legacy assets, James sees potential in spin-offs for legacy media companies and believes certain assets like cable networks might not necessarily need to be bundled with studios.
“Spin-offs could allow cable networks to maintain existing commercial arrangements while studios pursue new directions,” he said.
He highlighted the attractiveness of these assets for private equity firms, adding that while these assets might have slow or declining growth, they tend to generate high cash flow, which aligns well with private equity’s value creation model.
On video games and industry consolidations, Clarke emphasised the importance of high-quality IP as a central theme for growth. She sees Disney’s acquisition of video game capabilities as a smart move as games not only represent a growth area themselves but also provide a platform to extend engagement with existing IP across other platforms.
Clarke argued that the industry sometimes gets too focused on B2B models and forgets about the consumer, she points out that content consumption across various platforms – video games, news platforms, audiobooks – is on the rise.
The key, according to Clarke, is to follow the audience’s lead and figure out how to serve them content efficiently. The challenge lies in optimising the “dollar cost per hour” of content creation to achieve a better return on investment, and the outdated infrastructure of legacy media companies makes achieving this efficiency difficult, she said.
She sees high-quality IP, audience-driven content creation, and efficient delivery models as the keys to future growth in the media landscape.
Clarke criticised the current state of sports streaming, highlighting the fragmentation and inconvenience faced by fans. She pointed to the success of bundled music streaming services like Spotify, where users can access a vast library under one platform, as an ideal model.
According to her, the key is prioritising a seamless and unified user experience that reduces friction for sports fans. She believes this “consumer-centric” approach will be crucial for success in the future of sports streaming.
From a media conglomerate standpoint, James predicted consolidation in the media landscape, with some companies emerging as giants in both gaming and direct-to-consumer businesses. He sees traditional streaming models with fixed subscriptions for linear video as outdated.
He believes marrying gaming experiences like Fortnite and Roblox with streaming opens up vast possibilities for immersive and expansive monetisation opportunities, potentially increasing revenue fivefold.
Clarke believes conglomerates will persist in the media landscape, but they will transform significantly. She added that the current model of diversified media companies might not survive, and new structures may emerge.
She emphasised the growing power of content creators. “As creators develop their ability to directly connect with audiences, they will become increasingly influential. Therefore, future conglomerates will need to adapt to better serve all stakeholders, including creators, through streamlined and efficient models.”
