Reuters
- CBS and Viacom are already plotting their next acquisition, execs at the two companies suggested on a call this week.
- Business Insider talked to M&A experts about what
media ,advertising , and other companies would make the best potential targets and why. - ViacomCBS, as the combined company is to be called, wants the scale to compete with Disney, Comcast, and Netflix, which makes unscripted TV giant Discovery a frontrunner.
- But the company could also pursue a handful of smaller deals for media franchises or ad-tech companies to bolster its portfolio of brands and advertising tools.
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CBS and Viacom have agreed to tie the knot and are already plotting their next merger.
The media outfits say they'll be stronger together financially, paving the way for future deal making - with no further speculation hanging over the companies about whether they themselves will recombine.
"One of the other big things this deal does is take a big uncertainty off the company," Viacom CEO Bob Bakish, who will be CEO of the combined ViacomCBS if the deal goes through, told analysts on a conference call Tuesday. "We will be very well positioned to exploit those opportunities," he said, adding that both companies have been, and will continue, looking for opportunities.
Media strategists and analysts told Business Insider that ViacomCBS doesn't need to jump into another merger right away, though the companies seem to want to. Bakish summed up his ambitions on the call.
"Simply put, the combined company will be one of only a few with the breadth and depth of content and platforms and the global reach to shape the future of the industry," Bakish said.
ViacomCBS is sizing up content and production assets to reach the scale required to challenge media giants like Netflix, Disney, and Comcast. The company is also in a bit of a time crunch to get these deals done to generate more income to bid on NFL rights against deep-pocketed rivals like tech company Amazon, analysts say.
Shari Redstone, president of National Amusements, which has a controlling stake in both CBS and Viacom, has been shopping for deals with companies like Sony Pictures Entertainment and TV company Discovery Communications, NBC News previously reported.
There are few directions that ViacomCBS could go in with its next acquisition, the experts said. It could make a big deal for a company like Discovery, or snap up a handful of smaller companies in key growth areas like content production and ad-tech.
Scale
If scale is the name of the game, ViacomCBS will be looking for other media companies with robust production capabilities, popular franchises, and international footholds that complement its own breadth of brands and IP.
CBS has an older crowd through its broadcast network and sports and news channels, and Viacom targets kids with Nickelodeon, and teens through adults with myriad cable networks like Comedy Central, MTV, and BET.
Together, the two companies have a combined enterprise value of about $48 million. But they'd still be dwarfed by Disney, worth $313 billion; Comcast, worth $308 billion; and Netflix, worth $145 billion.
In addition to Sony and Discovery, execs at CBS and Viacom have mulled the idea of acquiring Starz, or its parent company Lions Gate, The Wall Street Journal reported. Movie studio MGM and cable programmer AMC Networks have also been floated in news reports as possible targets. Analysts Business Insider spoke with mentioned Fox, as well as Univision, which is seeking a buyer.
Of this group, unscripted TV giant Discovery seems to be the best fit, according to the experts.
Discovery would offer ViacomCBS three things: greater international presence, since Discovery has a variety of international TV channels, including Eurosport; content assets and access to non-fiction talent, like Chip and Joanna Gaines of "Fixer Upper" fame, and its arsenal of Food Network stars; and enough cable-TV networks to form an advertising juggernaut.
"CBS-Viacom with Discovery would make them the de facto gorilla in terms of ad sales in the pay-TV universe," Mary Ann Halford, a senior advisor at OC&C Strategy Consultants, told Business Insider. "They would be the market leader in that area."
Adding more cable channels exposes ViacomCBS to more risk from cord-cutting. But the company could also leverage its free ad-supported TV service Pluto TV, as Viacom is doing now.
All about that brand
But if the priority is to build scripted production capabilities and content assets to compete with Netflix and Disney (and sell programming to them), then Sony or Lions Gate would be better bets.
"The question that's behind this merger and will be behind subsequent moves is: Do we have a pipeline of content that is attractive and defendable?" Stephen Beck, cofounder and managing partner of management consultancy cg42, said. "And then, can we monetize it, and to what extent?"
Sony has brands like the Spider-Man franchise and a strong international presence. Lions Gate, meanwhile, has content assets like the "Hunger Games" franchise, and its subsidiary Starz could be used to bolster ViacomCBS' premium-TV service Showtime.
The key is finding content assets that still have a lot of runway.
"They're going to pay a premium for content that is, 1. marquee enough to hold consumers' attention and 2. which is almost more important, provides a platform for CBS to able to expand the content pool," Greg Portell, a lead partner with the global management consultancy AT Kearney, said.
Think Star Wars before Disney bought Lucasfilm. It was still a huge cultural phenomenon, but there was plenty of opportunity to revive the franchise for a new generation, broaden the universe with TV shows and spin-off films, sell toys and video games, and, ultimately, use Star Wars as a launch pad for Disney's streaming services, as Disney is doing now by making "The Mandalorian" the first original series to hit Disney Plus.
That could make movie studio MGM appealing at the right price. "The only reason to buy MGM is to get the Bond franchise," Halford of OC&C said.
Think like a tech company
ViacomCBS doesn't need to acquire a major media company to get the brands, IP, and relationships with top talent it's after. But to get around that, it'd have to start thinking like a tech company.
Like Netflix before it, ViacomCBS could make a handful of smaller deals with production companies and media franchises to shore up its portfolio.
Netflix has grown its assets, not by buying other media companies, but by signing long-term deals with top showrunners like Shonda Rhimes, Ryan Murphy, and "Game of Thrones" creators David Benioff and D.B. Weiss. It's also bought a few small production companies with valuable IP, including comic-book creator Mark Millar's MillarWorld and kid's media franchise Storybots.
Viacom recently acquired the "Garfield" kids franchise, which suggests CEO Bakish is open to that thinking.
Endemol Shine, the Dutch-based media company behind productions like "Big Brother," and dramas like "Peaky Blinders" and "Black Mirror," is reportedly on the market, among other smaller studios in Europe.
"At the end of the day what you want to do is build your IP," Naveen Sharma, analyst at S&P Global, said. "And it wouldn't blow up their balance sheet."
Another ad-tech
Execs of the future ViacomCBS also called out ad-targeting as one of the three key areas of growth for the combined company. As Halford said, advertising could become even more important if ViacomCBS doubles down on pay-TV channels through a deal with Discovery.
ViacomCBS could pursue an ad-tech company to sure up its advertising tools, just as AT&T followed up its deal with Time Warner by buying AppNexus.
"As pressure on CPMs and ad revenue continues to increase, just having size and scale isn't necessarily going to help CBS and Viacom," Portell said. "They're going to need some kind of secret sauce that offers advertisers more than just the eyeballs."
The Vice question
Another potential target floated in media coverage has been Vice, which is reportedly eager to find a buyer. None of the strategists or analysts that Business Insider spoke with were clear on what the upside of a deal with the digital media company would be for ViacomCBS.
"The question with Vice is how much revenue and profit will it add to the bottom line of a potential acquirer?" Portell explained. "That's always been debatable. If you're an established media player you're always being criticized because you're not creative enough and can't keep up with the Vices and BuzzFeeds, but as soon as you buy that company, your scorecard goes back to economics of the deal. Those acquisitions very rarely have paid off."
Vanity Fair also reported that Viacom's Bakish has no interest in acquiring Vice, which could squash its deal potential now that Bakish will be leading the combined company.
Other considerations
There are other considerations that will affect future deals with ViacomCBS, including whether the companies are for sale, and the competition to buy them.
Sony execs haven't said publicly whether they'd consider selling Sony Pictures, but The New York Post reported that Amazon may also be interested in the movie and TV studio. Meanwhile, Lions Gate and Univision, which has touted its Hispanic audience, are actively courting buyers.
Lions Gate, Starz, and Discovery come with another caveat: industry insiders suspect investor John Malone, which has stakes in all three companies, will want some kind of active involvement, such as a seat on the board of the merged company, if a deal is done. His relationship with the Redstone family has been rocky in the past.
Also, ViacomCBS will be in a stronger financial position coming out of the merger, but it's unclear if it will have the leverage to acquire a company the size of Discovery, which is larger now than Viacom was alone.