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Hollywood M&A

By Julius Kalvelage (WHU - Otto Beisheim School of Management) & Alexa Goulas (McGill University)

Trend Summary 

Competition within the media and entertainment sector has intensified as some of the largest entertainment conglomerates struggle to win new customers and release popular content. For example, Lions Gate, the studio behind “The Hunger Games” franchise and the hit series “Mad Men”, has struggled to continue producing similar blockbusters. Subsequently, they saw their share price fall roughly 70% since the start of 2018 (pre Covid-19). The need to be constantly creating and releasing new content has become even more difficult over the last few years. It is hard to know which TV shows will succeed or if a new release will positively or negatively affect a company’s momentum. On top of it all, these entertainment companies are now competing against the telecommunications industry, numerous tech giants, and the ever-growing number of digital entertainment companies like Netflix.

Trend Overview and Key Drivers

There has been high M&A activity in the past several years specifically driven by both internal and external industry competition.

In recent years, numerous big tech companies have shifted their efforts towards the media sector, generating a great deal of M&A activity. Apple’s streaming service debuted November 2019 while Amazon’s Prime Video has been steadily growing since 2006 and has even entered the sports entertainment space. These heavily capitalized companies with well-established offerings are “causing a lot of anxiety in the sector,” says Benjamin Swinburne, Morgan Stanley’s head of U.S. Media Research. He sees this leading to further consolidation within the space as “formerly very large media companies have become relatively small players.” 21st Century Fox Vice Chair Chase Carey seems to agree with this idea of rising competition from the tech industry:

When you look at the resources that exist with the players like Google and Netflix and Amazon, clearly, they are deploying enormous resources and spending billions of dollars, if not double-digit billions … so the nature of this game is competing.”

As Chase Carey said, tech companies are willing to deploy millions of dollars to pursue their own organic growth. Facebook has said it is willing to expend roughly $3 to $4 million dollars per episode for their own production; similarly, YouTube is willing to spend about $2 to $3 million. Despite tech’s ability to grow organically, M&A activity from big tech is also rising. For example, Amazon purchased Yankees Entertainment and Sports Network in its second biggest deal ever. The New York Times sums up what we are seeing quite well:

Netflix, Amazon, Apple and Facebook are spending tons of money for Hollywood talent, film, and TV properties, prompting a swift reordering that has yesterday’s media moguls cutting deals to stay alive.

Big tech’s invasion has led to a lot of anxiety in the media space, sending traditional media companies hurtling towards consolidation. Cornering content has become the media industry’s go-to strategy as big tech indirectly increases M&A activity.

Technology companies are not the only ones pushing into the media market; Telecommunication companies have also made recent advances into this space. As a sector with only a few major players, telecommunication giants are needing to diversify their offering – including content, voice communication, internet and more – to remain competitive and attract new customers. The rationale here is convergence in order to have a company that can offer all this at once. Additionally, they are able to increase their topline through increased video revenues, accelerated broadband growth and significantly expanded sales in non-US markets. Companies like AT&T, Comcast, and Charter Communications have dived straight into the market through acquisitions of Time Warner Media and DIRECTV.

Deals like these combine content libraries and leverage telecoms’ extensive customer relationships to increase their creation of premium content. For example, AT&T’s acquisition of Time Warner gives AT&T the opportunity to revolutionize marketing schemes and more successfully promote Time Warner’s content through its own platforms and channels; for Time Warner, it enables the delivery of great brands and premium content to consumers on a multiplatform basis. These channels were previously also used by Time Warner, but as a separate entity. Opportunities like these were recognized years ago, through companies like Spectrum, and now traditional telecommunication companies are wanting to catch up and cash in on these synergies. As a result, we have seen increased M&A activity by telecommunication companies within the entertainment sector.

Lastly, consolidation has become a necessary strategy amongst traditional media conglomerates in attempts to defend against growing online streaming platforms like Netflix. A large number of streaming services have launched after witnessing Netflix dominate the market with a $135 billion market cap. Disney, AT&T, Apple, NBCUniversal, Sky, and HBO are just a few companies releasing their own streaming platforms to defend against Netflix. When Viacom and CBS split in 2006, Netflix was a DVD-by-mail business. At the end of last year, they reunited to form a company with a market cap of roughly $25 billion which by then was dwarfed by Netflix’s current market cap. Disney, for example, plans to pull almost all of its content from Netflix to host it on its own platforms Disney+ and Hulu. Moreover, Warner Bros, one of the largest content creators within the TV industry was acquired by AT&T with big plans for its own streaming service. There has been a lot of organic growth in this field but many of the largest acquisitions have been intended to either advance into the media field or defend against entering competitors.

Within the media market itself, companies are facing competition amongst one another causing consolidation by elimination – a competitor acquires another competitor taking out competition and gaining valuable market share. Internal competition and the pressure to produce great content has intensified. Consequently, traditional players have bonded together to maximize conten and scale intellectual property in order to compete for customers. These mergers result in a smaller number of big-name companies controlling a majority of the TV shows and films being produced. Currently, five companies control nine of the top ten most-watched cable-channels. Likewise, through their acquisition of Fox, Disney now owns roughly 40% of North America’s yearly box office releases and produces about 30% of all primetime, scripted, broadcast TV series. Domination by these large players has put smaller studios like Lions Gate, Sony, and Viacom’s Paramount under serious pressure. As a defense, remaining players engage in mergers and acquisitions to attain necessary scale. “This business is getting harder, requiring more capital, more global distribution, and, ultimately, more consolidation…” said Benjamin Swinburne, Head of U.S. Media Research at Morgan Stanley, “…we think the race for scale will lead to lower near-term profits, and we continue to see only a handful of platforms emerging on the other side.” Vice Chair of 21st Century Fox, Chase Carey, makes a supporting point, suggesting companies, “either need scale that enables [them] to compete with the world [they] are heading into or really unique franchises that enable [them] to distinguish and build value off those unique strengths”.

In Carey’s opinion, Comcast’s $40 billion acquisition of Sky is a great example of a play for a unique franchise. As competition for popular content increases, he sees such distinctiveness as an incredibly important part of staying relevant. Scale, on the other hand, is the path media companies often choose to compete against the tech giants swarming the space. Carey attributes the $68 billion Time Warner Cable takeover by AT&T and Disney’s $84 billion acquisition of 21st Century Fox, as well as other smaller transactions and  investments in the streaming services space, to these notions.

Figure: Disney dominates the film industry (Financial Times)

Further Trend Analysis

The media industry sees new entrants pushing in, especially from the technology space, directly influencing the increase in M&A activity. Additionally, there is significant activity amongst established media companies fighting to maintain and broaden their customer base. Entrants from other sectors, particularly growing interest from big tech, are main sources of increased consolidation in the coming years with likely further industry crossover within the media market. Furthermore, streaming wars have only begun and are expected to have other long-term effects on the industry. As outlined above, the number of streaming services in the field have increased rapidly, several of them being debuted by leading content producers like Disney, HBO, AT&T or Sky. The changes in strategy and value chain by Disney and Warner Bros could fundamentally change how the TV business operates moving forward. Traditionally, studios like Disney and Warner Bros produced content that was distributed by companies like NBC and, more recently, Netflix, who paid for the right to air their shows. However, with content creators now moving down the value chain, competition is skyrocketing and consumers may end up with several streaming bills in order to access all their favorite shows from various producers.

Key examples

AT&T / WarnerMedia (Time Warner)

Announcement Date:    22/10/2016

Acquirer:                  AT&T

Target:                      WarnerMedia (Time Warner)

Acquirer Advisors:     Bank of America, JPMorgan, Perella Weinberg Partners

Target Advisors:        Citi, Morgan Stanley

Value:                       $105.236 billion

Cash or Stock:           50/50


  • The transaction will enable Time Warner to capitalize on opportunities created by the growing demand for video content

  • The transaction aligns with AT&T's strategy to combine Time Warner's library of content and ability to create new premium content with AT&T's extensive customer relationships

  • The combined entity will provide its customers enhanced access to premium content on all their devices

  • The transaction will provide AT&T with significant diversification benefits in regard to its revenue, capital intensity, and regulation

The Walt Disney Company / Twenty-First Century Fox

Announcement Date:    14/12/2017

Acquirer:                  The Walt Disney Company

Target:                     Twenty-First Century Fox

Acquirer Advisors:     JPMorgan, Guggenheim Partners

Target Advisors:        Deutsche Bank, Centerview Partners, Goldman Sachs

Value:                       $84.096 billion

Cash or Stock:           50/50


  • Fox's intellectual property and film and television portfolios will enhance Disney's content output

  • The acquisition will expand Disney’s global reach in growing markets as well as provide new opportunities of growth

  • The inclusion of Fox's portfolio will broaden Disney Direct-to-Consumer (DTC) capabilities

Charter Communications / Time Warner Cable

Announcement Date:    26/05/2015

Acquirer:                  Charter Communications

Target:                      Time Warner Cable

Acquirer Advisors: Bank of America, Credit Suisse, Goldman Sachs, Guggenheim Partners, LionTree Advisors

Target Advisors:        Centerview Partners, Citi, Morgan Stanley

Value:                       $77.829 billion

Cash or Stock:           $28.275 billion Cash / $26.815 billion Stock


  • The transaction is in line with Charter's strategy to become a provider of broadband services and technology and to expand its product offerings

Comcast / Sky

Announcement Date:    25/04/2018

Acquirer:                  Comcast

Target:                      Sky

Acquirer Advisors:     Bank of America, Evercore, Robey Warshaw

Target Advisors:        Barclays, Morgan Stanley, PJT Partners

Value:                       $51.494 billion

Cash or Stock:           All Cash


  • Sky will increase Comcast international revenues from 9% to 25%.

  • The acquisition is expected to be accretive to the free cash flow per share in year one, excluding one-time transaction related expenses.

  • The Acquisition is expected to generate annual run-rate synergies of around USD 500m

Amazon, Blackstone, Yankee, Sinclair, RedBird, Mubadala / Yankees Entertainment and Sports Network

Announcement Date:    29/08/2019

Acquirer:                  Amazon, Blackstone, Yankee, Sinclair, RedBird, Mubadala

Target:                      Yankees Entertainment and Sports Network

Seller:                       The Walt Disney Company

Acquirer Advisors:     Guggenheim Partners, LionTree Advisors (Sinclair)

Target Advisors:        N/A

Seller Advisors:         JPMorgan

Value:                       $2.776 billion

Cash or Stock:           All Cash


  • The acquisition will enable YES Network to leverage their expertise and market reach of Yankee Global Enterprises

  • It allows Amazon to enhance its network and strengthen its position in the sports broadcasting segment across all forms of distribution


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