Like Wave of MVPD M&A, More Programmer Deals Expected

Compared with pending megadeals of AT&T and DirecTV, and Charter Communications/Bright House Networks and Time Warner Cable, plus Dish Network considering combining with T-Mobile USA (see 1506040051), "the content side has been quieter," said analyst Chris Marangi of media investment firm Gabelli & Co. "I wouldn't expect that to last long." While multichannel video programming distributors [MVPDs] have been consolidating in large part to get bigger scale, “scale is important in content as well," Marangi said. "There are certain content companies that may be considered subscale or on the bubble and may need to think about how they survive in a world of greater fragmentation and competition from new sources of entertainment.” Liberty Media Chairman John Malone, supportive of MVPD M&A and helping fund Charter/BHN/TWC, "also has influence at Discovery [Communications], which is one of those companies that could probably benefit from additional scale,” Marangi said.

Given MVPD deals, “I almost see it as inevitable M&A [among programmers] will pick up," said Matt Polka, American Cable Association CEO. “It’s a matter of time as the content companies look and see who's combining on the operator side and see who their best partners might be to get leverage on the content side.” Those deals might not be with other programmers, but with over-the-top (OTT) providers, Polka said. “Who knows that a Netflix or Amazon doesn’t go buy a linear programmer? Who knows Google doesn’t go out and buy content? Who knows if someday soon … a Verizon or AT&T go out and buy their own networks? It’s happened before and it’s likely to happen again.”

For now, much of the programmer consolidation is overseas. Discovery said Tuesday it agreed to buy Setanta Sports Asia, a premium sports channel focused on rugby. Many other deals are in Europe. Scripps Networks Interactive, already buying a majority stake in Poland’s TVN, said this month it agreed to buy it entirely. That followed other acquisitions by AMC, Discovery and Viacom that were disclosed in 2014. Scripps sees the TVN buy as part of its global growth strategy as it looks “to become a world leader in lifestyle media,” said Joseph NeCastro, chief development officer. “We’ll always consider acquisitions, partnerships and launches that can help us to accelerate our channel and brand growth in many international markets."

The relatively slower U.S. M&A activity in the content world “has to do with weak investor sentiment,” said SNL Kagan Research Director Derek Baine. The growth of OTT services and worries about unbundling and a la carte packages cast “a dark cloud over a lot of these cable network stocks, a lot of negativity,” he said. Instead, content companies are fixing their acquisition eyes overseas and buying cable companies there, Baine said. “They’re afraid to buy each other,” he said. “Prices are cheap overseas [as] the euro is weak.”

While distribution outlets have consolidated, content “is under less pressure,” said Armand Musey, president and founder of the recently relaunched media industry financial advisory firm Summit Ridge Group. “If anything, it’s cheaper to make content” than a decade ago, given technological advances in digital editing and special effects, he said. Which could mean M&A activity among content producers always remains relatively muted compared to the consolidation wave in pay TV, though “you never say never,” Musey said. What would have been a major consolidation on the content side -- 21st Century Fox’s bid for Time Warner -- fell apart last year. A rumored acquisition of Scripps by Discovery Communications at that time also failed to materialize.