Big Tech Acquisitions of Media Companies Are on the Horizon Whos Next? | PRO Insight – Yahoo Entertainment

Lots of pain all around in this down market and amid these challenging economic times. But with pain comes opportunity, and the media and entertainment business is no exception. All of a sudden, deals that were well out of reach have become affordable. Many, in fact, become downright bargains. Meanwhile, companies pummeled by Wall Street have become increasingly open (several even desperate) to at least actively explore (and ultimately consummate) strategic alternatives with a cash-rich sugar daddy or mommy. All that makes for fascinating speculation about whos next in this great game of media and entertainment chess. (Note: I moderate an M&A panel of experts about just this subject on Wednesday at TheWraps TheGrill event, which features top M&A execs from four important industry players LionTree, Moelis, Raine and Shamrock.)

Obvious buyers are those who are cash rich. And Big Tech which has transformed the media and entertainment business over the past several years is where we begin. Even in these market conditions, the trillion-dollar valuations of Big Tech, together with their individual cash hordes of tens of billions of dollars, dwarf other potential buyers by an order of magnitude. The cash richest of them all is Apple (with a current market cap of nearly $2.3 trillion and tens of billions of cash on hand), so lets begin there and focus on the hypercompetitive streaming video world dominated by tech behemoths.

Apple doesnt typically buy companies. The stealthy Apple corps prefers to innovate itself. But even mighty Apple cant do it all. Lets not forget that Spotify was eating Apples lunch when digital downloads transitioned to the new dominant world of streaming music. Thats when Apple acquired Dr. Dres Beats for a cool $3 billion. And look at Apple Music now. It has catapulted to become Spotifys biggest challenger. Membership in the Apple family of cross-promotion has its privileges, after all.

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And the same may be said for Apple TV+ at this point. Cupertinos premium video paid streamer certainly scratches Apples strategic itch, providing highly effective marketing for Apple hardware products. The platforms historic streaming-first Best Picture Oscar for CODA and numerous Emmys dont hurt. But Apple is an ambitious one. So how about Apple doing for video what it did for music buy its way into victory?

And in the streaming video clash of the titans, Netflix, of course, is the big prize. Nothing comes close. And lookie-lookie. The streaming innovator, which once seemed invincible, now trades at a valuation about 67% less than its heights just one year ago (its current market cap is just over $100 billion, or about 23 times less than Apples). Sure, there are obstacles the antitrust police being just one. But its a potential deal that is definitely one to watch. After all, Netflixs depressed valuation isnt the only reason it is ripe for acquisition. The streamer simply cant endure the new rules of the game in the streaming video world for the long term. With few content franchises, it has no choice but to continue to spend massively on content and content alone is what it monetizes. Big Techs situation is vastly different. These massive players also spend big on content. But they can withstand those economics because their video services are only one cog in much larger multifaceted revenue machines. In other words, streaming video is a marketing means to an end.

And dont forget about Amazon as a possible buyer. Or Google or Microsoft, for that matter (you can rule out Meta/Facebook at this point since Mark Zuckerberg is now directly in the feds antitrust cross-hairs and humbled by a valuation well under $400 billion). Netflix is likely in Amazons direct line of sight for reasons similar to Apples. Marketing, plain and simple. Amazon, like Apple, uses content in this case premium video to pull us in to buy (and keep buying) Prime memberships and shop for more online good. Amazon Prime Video helps over 200 million of us forget that we automatically pay well over $100 annually for Prime memberships. Together with its recent MGM buyout, Amazon is in the streaming game to win it, and the companys roughly $1.2 trillion market cap is about 12 times Netflixs.

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And how about Google? It has tried various flavors of paid premium video subscriptions too many times to count and has essentially scrapped that idea for its YouTube brand. So why fight when you can bite the bullet and buy yourself into the game? Google certainly has the means. Just like with Apple, cash isnt the issue (its market cap is roughly the same as Amazons). Antitrust could be a challenge, of course, but that doesnt prevent an ambitious cash-rich player from trying.

Meanwhile, sleeping giant Microsoft quietly second only to Apple in its market valuation (now at roughly $1.7 trillion) has awakened to the power of content in a big way. The company bought leading games studio Activision for nearly $70 billion earlier this year. And its Xbox Game Pass is the market leader in subscription gaming. So why not go after Netflix to be the two-time streaming winner for gaming and video? Why stop there? Why not buy out the music leader Spotify too for the streaming trifecta? Spotify suffers from the same disease as Netflix content-only monetization-itis. And its burden may be even greater than Netflixs because its content licensing costs are variable the more success it has, the more costly that success is.

But these big four tech giants dont just want Netflixs massive international reach and global brand. They also crave franchise content. And for that, they will need to go elsewhere, since Netflix carries few IP franchise content gems (Stranger Things is likely the platforms biggest). Content franchises certainly are a major motivator for M&A right now, because they come with instant brand recognition and built-in audiences and can be re-imagined over and over again for decades. Thats why Amazon bought MGM.

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And for those reasons, despite its protestations to the contrary, Warner Bros. Discovery is ripe for the picking at a market cap of about only 30% of Netflixs. Just think about Warner Bros. and HBO franchises alone. That instant marketing star power would bring the eventual winner ever closer to Disneys Magic Kingdom of mega-franchises like Star Wars, Pixar and the Marvel Universe. Warner Bros. Discovery is MGM on steroids. While Warner Bros. Discovery CEO David Zaslav denies any interest in selling the company he just recently proclaimed We are not for sale, absolutely, not for sale Ill channel my own inner Shakespeare: Methinks thou dost protest too much. All M&A targets say that to drive up their price. Accordingly, the company will ultimately be bought.

In that same vein, its entirely logical for broadband-focused Comcast to shed its franchise-content-rich, but much lower-margin NBCUniversal business. That part of Comcasts business could be a bargain, given that the combined company now trades at a market cap just over Netflixs at about $130 billion. (Hey mega-buyers out there, why not just combine NBCUniversal with Netflix to create a franchise-rich streaming media juggernaut?)

How about Disney the franchise behemoth in this game of studio roulette? The companys cash cheese is a mouse compared to the trappings of Big Tech. At a market cap hovering around $175 billion, its means are seven dwarfed by those green-rich giants. No contest. So its not a buyer. But could it be a seller? If weve all learned nothing else, weve learned never say never. Disney owns Pixar. Steve Jobs birthed Pixar. So Apple and Disney share the same DNA. Just sayin

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In terms of smaller, yet still strategic, content and franchise-driven deals, prestige studios A24, Anonymous Content and Blumhouse should be on everyones lists. To be clear, these would not be bargains. Far from it. Laurene Powell Jobs and her Emerson Collective own a significant share of Anonymous Content, after all. But the streaming behemoths will pay up for the A-list content they need to win.

These are just the potential megadeals in the streaming video space. Not saying they will happen now or even anytime soon. But mark my words, Warner Bros. Discovery, NBCUniversal and yes, even Netflix, will happen. Apart from very real antitrust headwinds right now, financial buying conditions certainly dont get much better for big tech than they are today. And even if market conditions change radically in the months and years ahead, big techs basic asymmetry in terms of cash resources has created a new and lasting Silicon Valley-fueled media and entertainment world order.

As we wait for these shoes to drop, however, lets not forget that scores of other media and entertainment M&A deals are likely in the works right now due to market conditions. Some will become headline news. Many wont. But all media and entertainment M&A will be fueled by a good dose of tech.

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Big Tech Acquisitions of Media Companies Are on the Horizon Whos Next? | PRO Insight - Yahoo Entertainment