Allen & Co.’s annual Sun Valley Conference is known for drawing an A-list roster of execs from across the media and tech realms, with a generous sprinkling of sports commissioners, politicos and other notables added to the mix.
This year’s event, which gets under way Tuesday, looks to be no exception to the rule, though the atmosphere is likely to be subdued given the general M&A climate. (On the plus side: No N95 masks required in all that fresh air!) Media chiefs including Disney’s Bob Iger, Warner Bros Discovery’s David Zaslav and Paramount Global CEO Bob Bakish and non-executive chair Shari Redstone are expected, as are Netflix’s Ted Sarandos, Meta’s Mark Zuckerberg, Apple’s Tim Cook and Microsoft’s Satya Nadella.
Members of the press making the trek to Idaho are kept at a distance from the goings-on inside the Sun Valley Resort, and event organizers frown on participants doing any media relations beyond waving at cameras and briefly chatting at the valet line. CNBC has typically established a remote set a safe distance away, drawing a few guests, though not to spill any details of what happened inside. This year’s labor situation — with the WGA already out on strike and SAG-AFTRA facing a deadline with the AMPTP on Wednesday — will only add to the incentive to hunker down out of the reach of zoom lenses.
Because of the sheer tonnage of potentates in attendance, and perhaps because of the clampdown on press access, the presumption is that dealmaking dominates attendee agendas. Reports about the annual confab often cite major tie-ups whose roots can be traced back to Sun Valley, though the list is getting a bit long in the tooth. The most often-cited roster includes Disney-Capital Cities/ABC (1995); Comcast-NBCUniversal (2009) and Jeff Bezos-Washington Post (2013).
Even when the economy is humming, the conference isn’t the hotbed of M&A transactions many press depictions make it out to be, though it does provide neutral and luxurious ground where conversations can begin. Still, plenty of massive deals — Disney’s $71.3 billion acquisition of most of 21st Century Fox, the $43 billion merger of WarnerMedia and Discovery — have been negotiated without any river rafting being involved.
Whatever the topics of the day both inside the official sessions and on clandestine coffee runs and power walks, a few factors are casting a long shadow over the deal market. Inflation is the primary economic issue, while the regulatory environment and tighter oversight during the Biden Administration has also emerged as a disincentive.
According to PitchBook, venture capital deals amounted to only $85.6 million through the first half of 2023 and fell by half during the second quarter compared with levels of a year ago. The tally through the first two quarters was the lowest since 2014. Overall M&A deal volume and values have slumped to their lowest levels since the onset of Covid in 2020.
A recent report from PwC suggests that dealmaking could return in the second half of 2023 as long as sellers are realistic about pricing. Still, interest rates are making financing expensive, which is an obstacle to many transactions. “It’s a buyer’s market out there now, especially for cash-rich corporate acquirors and middle-market deals,” said Brian Levy, global deals industries leader and partner at PwC. “It’s essential for sellers to work harder to prepare for upcoming sales—or risk losing out.”
Traditional media companies are in the process of shaving more than $10 billion in costs from their respective operations and streamlining their structures. The prior embrace of direct-to-consumer streaming, which has burdened companies with costs and no clear path to consistent profitability, has given way to new attempts at austerity. The main question, in terms of M&A, is how would they be able to shed legacy assets? Paramount has been exploring the sale of BET Networks and Warner Bros Discovery reportedly had preliminary conversations about offloading CNN but it’s easier said than done.
Until recently, minority investors like private equity firms didn’t have an avenue to allow them to get a piece of film and TV assets. TPG attained 30% of DirecTV when AT&T spun out the pay TV operator in 2021. Last year, Nexstar Media Group used its own estimable balance sheet to move in on The CW, taking on the broadcast network’s debt in exchange for a 75% equity stake. What reshuffling could be next? Lionsgate has said by this fall it will separate its studio business from Starz and the streaming side of the company. Hasbro is in the process of shedding eOne and Paramount has re-engaged in the process of selling Simon & Schuster, with a year-end closing target.
One transaction with ramifications for many entertainment players isn’t technically in the realm of open-market M&A. Disney and Comcast are coming down the home stretch with their put-call negotiations for Hulu. Disney is expected to buy out Comcast’s remaining 33% stake in the streaming service early next year after both sides flirted earlier this year with the idea of Comcast being the buyer. The final price is to be determined, though the floor valuation has been set at $27.5 billion.
Craig Moffett, in a recent MoffettNathanson note about the Disney-Hulu dance, reflected the general sense of restlessness in the media business, which has reached the halfway point of a grueling year amid a lot of unanswered questions. In the case of Comcast, the company’s apparent decision not to go all-in on buying the two-thirds of Hulu it does not already own puts more focus on the company’s larger strategy. “If not Hulu, what then?” Moffett wondered. “Will they simply move on to something else to buy instead?”
As the Magic 8-Ball would say, signs point to yes.