The great attack by the super-rich Silicon Valley companies on traditional media organizations is taking epic proportions. Apple + is the latest addition to all the initiatives from the famous San Francisco valley: for the Cupertino company, this investment is of some strategic nature, but on the balance sheet of the company a piece of cake.
The answer of the traditional media industry (to which I also originally assign distribution companies such as Comcast) is scaling up. The deals in recent months have been unprecedented: Disney acquired Fox, AT&T bought Time Warner, Comcast acquired Universal a few years ago and most recently Sky.
Multiple deals are still in the works, Mediaset, for example, is building a significant stake in ProSiebenSat1. The result of all this? The debt of the acquiring companies is growing to alarming levels. The SEC in the US published the debts of these companies in the middle of this year. Sony and Viacom are still refraining from large transactions and have debt positions to be used (USD 5.2 and 9 billion respectively). But others are building massive debt positions: Disney $ 57 billion, Comcast $ 101 billion, and AT&T, $ 170 billion!
Now money is unimaginably cheap right now, so now is the time for these types of transactions. These debt positions are often still within the applicable limits. These are usually calculated as the ratio of the debt position (minus cash) to the profitability of the organization (usually expressed as the EBITDA figure). In almost all cases, this figure remains below 4 for these companies. But when times change, interest rates rise and profits shrink during a recession, Leiden is immediately in trouble. In short, Hollywood takes a fair amount of risk.
A good example of what debt can do to a company is Endemol. Before and after the merger with Shine, the company was crammed with debt by its owners. The debt position was approximately $ 1.8 billion, giving a ratio of approximately 10. A company can simply no longer pay the interest on this type of debt. The result of such a situation is that in these circumstances companies cannot invest enough to grow and expand the position. Banijay is now taking over the debts of EndemolShine and, if not careful, will also take (too) great a risk.
Those risks can only be accounted for if the acquirer has a clear strategy and rigorously implements this strategy. Disney seems to have done that: the company will immediately serve the consumer (with which it already has experience via the theme parks) with its range of VOD brands. The launch of Disney + was successful despite the necessary flaws and ESPN (Disney's sports brand) also seems to be doing well. The company is managed very tightly and will survive despite the great risks.
But in many other cases, the focus is only on the transaction and the top of the organization forgets the execution. The lesson of practice is that many takeovers are not that successful at all and end in failure. Usually this is simply due to the execution: management is a craft and that is sometimes lacking in the media. Formulating a clear plan of action and then executing it is not at all sexy and is often forgotten. In those cases, a mountain of debt really becomes a problem!
The COVID crisis hit many parts of the media sector hard over the past year. It was no different in the field of sports rights, which involved enormous amounts. It is logical that sports organizations do everything they can to organize major tournaments such as the Olympic Games and the European Football Championship a year later: one simply cannot afford to let the enormous rights income flow once. This income forms the oxygen or perhaps also the opium for sports organizations and clubs.
It is no different in the regular competitions, especially in the field of football. Whereas in the Netherlands the media revenues still represent a relatively modest part of the turnover of the sector, this interest has grown enormously in the 5 major European countries. The pressure to finish competitions was therefore enormous. This was not possible in France, so rights holders negotiated substantial discounts on the agreed amounts. In England, Germany, Italy and Spain the competitions were still played out and the damage was not too bad.
However, the COVID specter does affect media rights: new deals appear to be significantly lower than the old ones at first glance. Initially, the flag went out in France when the amount of rights more than doubled when La Ligue (the umbrella organization of French football) switched from Canal + to the Spanish Mediapro. It soon became apparent that Mediapro could no longer afford the rights, after which La Ligue had no choice and again tendered the rights. Canal + has recaptured the rights for a fraction of the original rights amount until the end of this season. But as is the case, the French clubs had already invested on the higher amount of rights: French professional football is therefore in a major financial crisis.
It is no different in Italy. The current rights deal will expire at the end of the season and the bids from Sky Italia on the one hand and the consortium DAZN and telecom company TIM on the other still leave something to be desired. It is the first time that DAZN, which likes to advertise itself as the Netflix of the Sport, is fully bidding on the rights at the highest level. It is a break in the trend that the new rights deal seems to be closed lower than the previous one. After all, the trees of pay-TV no longer grow to the sky, foreign consumers seem to have become accustomed to lower prices for digital video.
It is extremely interesting to see what the future development of supply and demand in the sports rights market will look like. New digital players such as DAZN and Eleven Sports have entered the arena and Amazon is also participating a bit. History shows that new entrants make the current parties (usually Pay TV providers) nervous and still drive up the price for sports rights. It only takes 2 to tango and the rights holders are warm again!
Most people in the media world are happy that 2020 is over. The COVID crisis hit employees and employers hard in the past year, apart from a few. Fortunately, there has been some recovery in the last two quarters, which seems to have been the worst. The advertising market recovered and productions could be restarted, albeit with restrictions. It is time to look to the future again and then 3 trends stand out in particular.
First of all, the "traditional" media companies defend themselves by setting up VOD initiatives themselves. Global players such as Disney and Discovery do this by coming up with their own SVOD proposition, which is complementary to what Netflix and Amazon have to offer. Both companies did this by putting + behind the name and behind this there are very ambitious plans. Disney uses its extensive kids catalog and does not hesitate to use major films such as the Star Wars series. Discovery positions itself as a factual expert, and in some regions (such as Europe) also focuses on Sport. It is almost impossible for both initiatives to be very successful this year. Broadcasters also start up national VOD activities, whether or not in a mix of AVOD and SVOD. I have already skewed about that in my column in October last year.
The second trend is a very striking one: Studios are about to stop premiere films, but to introduce them directly on their own SVOD platforms. This makes the need (after all, going to the cinema has been banned worldwide for months) into a virtue: big, new titles continue to attract a large audience. Disney has embraced this strategy, but the most aggressive player appears to be Warner Media, which has shifted many premieres to its SVOD platform HBO Max. Only time will tell if this is a wise strategy, because the international box office has been a cashcow for blockbuster films for decades. At the end of the year, we will be able to assess whether this bold strategy has been successful.
The third trend: local governments are very concerned about the increasing importance of Big Tech. In addition to the initiatives to divide these companies into pieces (which will take a long time), national governments are increasingly looking at how to protect their own media industry. On the one hand, this will be done by allowing scaling-up in the media. It is not without reason that Thomas Raabe, the CEO of RTL, bombarded the competition authorities with the idea that advertising markets should be viewed as a whole. This could pave the way for national media mergers. The British government is also engaged in a consultation (called Small Screen, Big Debate) to see whether the BBC should be given more opportunities in the online field. I would not be surprised if in the future this debate also started to erupt in the rest of Europe, which would be good news for every European public broadcaster.
It is now clear to everyone that the media world is fundamentally changing. The corona crisis deepens this development, because traditional television is increasingly coming under pressure from streaming video. It is nice to see how new brand names pop up left and right. We are now used to Google, YouTube, Facebook and all other digital giants, but many of those names are barely 10 years old. What is interesting is how traditional media companies are re-profiling themselves by choosing new names: new SVOD initiatives seldom have the name of the "old" parent company anymore.
RTL was the first to do this through the acquisition of Videoland, but that was still a coincidence because the name came along with an acquisition. Furthermore, new (marketing) thinking has taken hold everywhere, especially in the field of streaming services. ProSieben and Discovery launched Joyn, VTM and Telenet are coming with Streamz, the BBC and RTL have been back with Britbox a few years ago and Peacock, the new streaming service of mega company Comcast, is currently being launched.
However, it is also interesting that old brand names are going under. Who did not know Endemol and Shine? Endemol was the personification of the rise of the international television production companies. The company grew through a sophisticated global acquisition strategy. The companies that were taken over were almost immediately renamed Endemol: Endemol Italia originally saw the light of day under the name Aran, Endemol France as AFP and I can go on and on. Liz Murdoch's Shine grew more independently and opted for the Shine brand name in all countries where it invested. 21st Century Fox was a household name in film production and was also active in television. With sales of more than $ 20 billion, it was one of the majors that ruled the international media world.
All these illustrious names of yesteryear are thrown away by the new owners of these companies. After the takeover of Endemol and Shine (which has now become a single brand name), Banijay immediately decided to continue using the Banijay name. No half-hearted measures here, but equal clarity: the Endemol and Shine brand names are gradually being removed through the back door. Disney is going to do exactly the same with 21st Century Fox: the name Fox will be radically removed and it will also be a matter of time that channels that still carry the Fox name (especially the sports channels) will be renamed.
The major changes in the media world can also be seen in the brand names. Iconic brands are disappearing, new brand names are taking their place. The next phase is already coming: in the fight against the American streaming platforms, national media companies should be able to merge, as I mentioned in my previous column