The mountains are as gorgeous as ever, the deal climate not so much as boutique investment bank Allen & Co. prepares to host its annual Sun Valley retreat. After guests arrive on Tuesday, official activities get under way Wednesday.
The annual ritual of media-mogul whitewater rafting and shop talk is a 40-year, post-July 4 tradition. It was suspended in 2020 during the worst of Covid but returned last year in a pared-down, masked-and-vaxxed version soon after two major deals were announced — the Warner Media/Discovery merger and Amazon’s planned takeover of MGM. Discovery’s then CEO David Zaslav’s first comment to the Sun Valley press cadre a year ago: “We’re not done yet.”
Now he’s chief executive of the new Warner Bros. Discovery and will likely be more circumspect as the high-debt company tries to deliver on a promised $3 billion in cost savings, and, with its peers, weather a brutal stock market, a Wall Street about-face on streaming, soaring inflation, surging interest rates and maybe a looming recession. Zaslav’s attendance is confirmed, along with that of WBD chief revenue and strategy officer Bruce Campbell, we hear.
Those two deals shook up media in a scramble of who lost out and what might be next. Paramount (known a year ago as ViacomCBS) wanted a big deal, so did NBC Universal parent Comcast. Both had eyed Warner Media. Paramount’s non-executive chair and controlling shareholder Shari Redstone will be back. CEO Bob Bakish was invited but can’t make it.
Fox CEO Lachlan Murdoch and COO John Nallen are confirmed. So is Sony Group Corp. CEO Ken Yoshida and Jim Ryan, head of PlayStation. Casey Wasserman and Mike Fries too.
Not all invitees necessarily attend. But Rupert Murdoch is a regular and Bob Chapek — a new three-year contract now in hand — was there last year. Invitees also include tech CEOs, among them Elon Musk, Apple’s Tim Cook, Meta’s Mark Zuckerberg, Amazon’s Andy Jassy and Alphabet’s Sundar Pichai. The list features an array of top-of-the-top of media chiefdom – companies that could or do bank with Allen & Co. — and executives from companies that are clients.
By putting execs in close proximity and in khakis, the Sun Valley conference is credited with planting the seeds of mergers – from Disney’s buying CapitalCities/ABC back 1995, to Amazon founder Jeff Bezos’ acquisition of The Washington Post in 2013.
For invitees Reed Hastings and Ted Sarandos, Netflix co-CEOs, the year since Allen & Co. 2021 has made a massive difference. It stock plunged 70% from the start of the year after shedding subscribers last quarter for the first time, announcing it would lose more in the just-ended June quarter and suddenly unveiling plans to launch an ad-supported service even as it lays off staff. As a result, Netflix is increasingly seen as a takeover target — an unusual shift.
An independent Netflix “is gone,” predicted one financier. It’s a very valuable platform but “not a growth story anymore.” Hastings and Sarandos “didn’t manage Street expectations” and in one fell swoop lost a couple hundred million dollars” of market cap, he said, referring to its latest post-earnings video call when the co-chiefs discussed the subscriber shortfall.
Over the next 18 months, “the environment will be clearer,” he said.
That’s also about when buyers could consider swooping in to acquire WBD. The structure of that deal would entail a hefty tax penalty for any acquirer within two years of close.
What happens between now and then is anyone’s guess. The Netflix effect has spilled to shares of other streamers as investors question the economics of the high cost, still slim profit business. Meanwhile, pent up demand, the Russia-Ukraine war and lingering Covid-related supply chain issues have triggered sky-high inflation. Corresponding interest rate hikes by the Federal Reserve risk recession, a fear that has hit advertising and may bleed into other areas of entertainment.
As a result, the Allen & Co. crowd is assembling just after the S&P 500 closed out its worst first half of the year since 1970, declining by more than 20%. The Nasdaq was worse, down by nearly 30%, and the Dow fell 15%. Tech stocks have been hardest hit but media underperformed broader markets as the second quarter ended yesterday.
Deals are still in the news. The long gestating CAA-ICM merger just closed (Allen & Co. advised CAA). Elon Musk’s Twitter deal (Allen is an advisor to Twitter) and Microsoft’s purchase of Activison Blizzard (with Allen advising Activision) are pending.
But an M&A outlook from PwC recently predicted a slowdown in the biggest of big media M&A – which last year was seemed to be just revving up — amid low share prices and high interest rates. Paying with stock is limited now and accessing the debt market, it is more expensive. Companies don’t like to sell at a low point.
Endeavor just slashed a pending $1.2 billion cash and stock purchase for sports betting platform OpenBet by $400 million yesterday to $800 million.
And he’s not always right but he’s not alone: Zuckerberg reportedly told Meta staffers today that, “If I had to bet, I’d say that this might be one of the worst downturns that we’ve seen in recent history.”