U.S. mergers make Euros rethink links

Europeans may have been stunned by the news of the latest consolidation mania sweeping media companies in America. But many point out that sheer size does not automatically create effective synergies.

So while several Euro execs are concerned about being marginalized by the media frenzy across the Atlantic, they are not convinced that they should just cede the field to the Yanks. Some savvy Euro execs are already taking an opportunistic view of how to deal with the mergers in the U.S.

Greg Dyke, head of Pearson TV, one of the U.K.’s dynamic international companies, says, “What’s interesting is what gets spun off at the side” – in other words, if the U.S. mergers result in some divestment of peripheral businesses, that creates acquisition opportunities for the likes of Pearson.

The impact of the mega-mergers, Dyke and others say, depends on whether the merging companies combine effectively. Disney-CapCities is widely seen as a more reasonable fit than Time Warner-Turner, and there is a lot of Euro skepticism about whether that latter combo can possibly work.

Tom Chandos, an analyst with Botts & Co., a U.K. merchant bank part-owned by Allen & Co., says, “I can’t see how in reality any of the U.K. players that make noises about being a major force globally can make dismissive noises about the implications of these mergers.”

Chandos argues that European companies with global aspirations should be banding together in alliances to penetrate the American market. “Maybe Bertelsmann and Canal Plus, having the links they already do, should join forces in counterbidding for Turner, and that in time would lead to greater integration between those two companies.” However, in general Chandos sees not a lot of evidence that any Euro companies are thinking about these kinds of strategic alliances.

No Euro mania

Gottfried Zmeck, KirchGruppe managing director, tells Variety he does not expect his company to go on an acquisition spree as a result of the U.S. mergers, nor does he see it happening in Europe in general. “In Europe, we can form specific partnerships without having to merge,” he points out.

And even more phlegmatically, BMG Entertainment Group CEO Michael Dornemann says, “From Bertelsmann’s point of view, we would never pay prices that are not justified by the practical value (of the asset).”

So what happens if the Euros don’t do what Chandos recommends? What happens if they don’t respond to the merger challenge?

Well, nothing, in the short term. Because of ownership restrictions, the European broadcasters are not takeover targets for American megaliths. The Euros are very strong in their domestic markets – although clearly the growth of cable and satellite, and particularly the arrival of digital, is loosening the ability of governments to exclude non-European broadcasters.

“It just reminds you, however fashionable it is to be skeptical about the European Community, of the value of having a single market of 300 million people. European companies have to find a way of harnessing a similar-sized market if they are to be anything other than marginal players even in their own market,” Chandos says.

Forget U.S. presence

As for whether the Euros have much chance of boosting their presence in the U.S., Adam Singer, president and CEO of TCI Intl., thinks not. Do the American mega-mergers change the game for the Euro wannabes? “I don’t think it changes the game at all, because I don’t think they ever had a chance to start off with.”

In other words, the Euros never had a chance in the U.S., though Singer says the Euros have got a perfectly lucrative market to get on with in Europe, and they should concentrate on that.

As for those Euro companies that are building toward an American presence – “By the time they get there, what kind of party do you think will be left?”

Nigel Walmsley, director of broadcasting at Carlton Communications, thinks that the European media players should call on U.K. and Euro politicians to lift the regulatory shackles upon Euro players.

“The developments taking place in America are linked to the relaxation of the American regulatory environment. It’s a very timely reminder to European regulators that their much more cautious approach to deregulation has got to gather pace.”

Red-tape tangle

Carlo Bernasconi, CEO of Fininvest’s Mediaset division, adds: “Next to these large (American) groups, we feel like insects. Just think that simply to be able to program our films in an Italian regional town like Imola, we have to go through an antitrust commission.” In general, Walmsley argues that the growing size of the American software suppliers does not threaten to crowd out smaller Euro soft ware suppliers like Carlton, simply because the global market for software is growing too fast.

“The growth of global demand is very rapid indeed. The expansion of market opportunity is powering ahead very strongly, and I believe there will continue to be opportunities for us.”

Carlton’s focus is on British and European programming, not American: “Good quality American programming material is very successful, but it’s not the only game in town. You can legitimately aspire to grow in international markets without it.”

Stewart Till, president of Polygram Filmed Entertainment Intl., suggests that in terms of the distribution business, critical mass means being big enough, but not too big. In other words, once you have achieved a competitive size, it isn’t necessarily any advantage to grow any bigger, and that excessive size can even be a disadvantage.

Benefits for Euros

One senior British media exec, who asked not to be identified, had a rather radical view – that the American obsession with size actually worked to the benefit of smaller and more entrepreneurial European companies. His logic is that synergy is nonsense, that success comes with being focused and nimble, and that the more the Americans consume their energies trying to make huge domestic mergers work, the more they will miss the boat in the fast-moving international market.

“What’s happening in America really has repercussions for America alone,” he says.

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