New York Dealmaking: Big Media Companies Buy Digital Startups in Bid to Stay Competitive

Conglomerates prepare for the brave new world of cord-cutting, mobile and streaming

Big entertainment and media deals such as AT&T’s acquisition of Time Warner and Comcast’s purchase of DreamWorks Animation are the ones that steal the headlines, but many smaller pacts are equally significant and, in some ways, more critical to the survival of the giant legacy conglomerates.

These less-visible deals involve the snapping up of small- and medium-sized companies as the major players look to beef up their savvy in such non-legacy areas as digital media and streaming, to nab bright execs at promising startups, to get an insider’s view of the fast-moving digital business, and to minimize the danger of being left behind in a world of disruption.

“They’re trying to get ahead of the curve and there’s pressure to get into new technologies,” says veteran media analyst Hal Vogel, CEO of Vogel Capital Management. “It’s important to take risks and experiment.”

For example, a key motive for Verizon’s acquisition last year of tech startup Vessel was to bring aboard executive talent. “In specific instances, we may do a small transaction just to get the people,” says Verizon senior VP-corporate development John Doherty. He also chairs Verizon Ventures.

In other instances, dealmaking aims to corral business capabilities that plug gaps for the big buyers. For example, research companies that track consumers and foster fan engagement are being gobbled up by music labels and other big music outfits to build in-house analytic smarts.

Also, traditional TV and movie companies, awed by Netflix’s understanding of its audience program preferences gleaned from census-level streaming data, scout for analytics skills. One example: in January, broadcast station groups Capitol Broadcasting, Fox Television Stations and Tribune Media all invested in audience analytics outfit Share Rocket.

One characteristic frequently sought in digital acquisitions of all stripes is scalability, where a company’s core capabilities can quickly and cheaply expand across cyberspace. That can drive fat profits in digital.

But this can also expose cultural differences between older companies and the new breed. Even small onliners fetch rich prices in today’s digital media frenzy, which is tough to swallow for potential buyers that are large traditional media companies with more down-to-earth valuation metrics.

A quirk of the digital space is that startups often rake in investment dough from multiple corporate giants that are arch competitors in the broader media landscape. Such fractional ownerships uniting strange bedfellows are shrugged off as the way things are done in the topsy-turvy digital world.

“We approach everything with an open mind,” says Viacom senior VP of corporate development Alex Berkett. “There is some amount of familiarity with our competitors. Sometimes we are in partnerships around the world or other commercial activities with them.”

Allison Goldberg, senior VP and group managing director at Time Warner Investments, says that another criterion driving deals is whether the digital small fry have the potential to engage in business ventures with the parent company. Such alliances can supercharge the small digital enterprise, making digital-media investments pay off quickly.

“Around 70% of our portfolio companies have ended up with partnerships with Time Warner operating divisions,” Goldberg says.

In other instances, the traditional media giant gets a quick benefit, too. Millennial-focused BuzzFeed set up a content stream at NBC Television’s Rio Olympics distributed via messaging app Snapchat, generating 2 billion Snaps/interactions heavy with an audience under age 25. (NBCU is an investor in both BuzzFeed and Snapchat’s parent.)

“We had to partner because of [BuzzFeed’s] expertise producing for the Snap platform,” says Maggie Suniewick, president of NBCUniversal Digital Enterprises.

To navigate cyberspace, many big-media giants have small in-house specialist teams beating the bushes in the digital jungle. The approach is usually to make modest financial bets across numerous digital companies. That portfolio strategy — spreading risk around — results from the expectation that many digital investments won’t pan out.
The same traditional media giants typically have separate executive teams for big-ticket transactions that require a different skill set for far fewer but much bigger deals, including those outside of the digital realm.

Some of traditional media’s forays into digital visibly paid off. DreamWorks Animation showed Wall Street its digital-deal savvy by selling a 25% stake in AwesomenessTV for $81.2 million in 2014. A year earlier, DWA had bought the teen-focused multichannel network for a base price of just $33 million, not including a substantial earnout bonus. DWA is now part of NBCUniversal.

But the path toward capitalizing on the digital revolution is also littered with missed opportunities. Netflix, with a stock market capitalization topping $75 billion, and Facebook, with a staggering $500 billion, both bloomed while traditional media stood mostly on the sidelines. Today, those digital media leaders tower over traditional media on Wall Street.

But setbacks aside, digital investment and acquisitions are likely to continue because cyberspace growth eclipses traditional media.

“Most of legacy media has no place on mobile phones,” says Rich Greenfield, media and technology analyst at BTIG. “They are not players in mobile and there’s only one-way in. And that’s spending real dollars.”

More Biz

  • Delta Air Lines celebrates Grammy Weekend

    Halsey, Jonas Brothers, Zedd to Headline iHeartMedia Wango Tango Concert

    Jonas Brothers, Halsey, 5 Seconds of Summer, Zedd, Ally Brooke (with special guest Tyga), Ava Max, Fletcher and Tomorrow X Together will perform at iHeartMedia’s annual Wango Tango concert at the Dignity Health Sports Park in Los Angeles (formerly StubHub Center) on June 1. Freeform will broadcast a 90-minute television special on Friday, June 7 [...]

  • Prince Memoir, ‘The Beautiful Ones,’ to

    Prince Memoir, ‘The Beautiful Ones,’ to Be Released in October

    The memoir Prince was working on at the time of his death is coming out Oct. 29, according to the Associated Press. Publisher Random House confirmed Monday that “The Beautiful Ones” will combine Prince’s unfinished manuscript with rare photos, scrapbooks and lyrics. Announced just weeks before his 2016 death, the 288-page book, issued in partnership [...]

  • Abigail Disney on Bob Iger

    Abigail Disney Calls Bob Iger's $65 Million Compensation 'Insane'

    Disney chairman-CEO Bob Iger’s total compensation for Disney’s fiscal 2018 was a whopping $65.6 million. Abigail Disney, the granddaughter of Disney co-founder Roy Disney, calls that sum “insane.”  While speaking at the Fast Company Impact Council, the filmmaker and philanthropist insisted that this level of corporate payout has a “corrosive effect on society.” Disney took [...]

  • Contract Placeholder Business WGA ATA Agent

    Signs of Solidarity and Strain Emerge as Week 2 of WGA-Talent Agency Standoff Begins

    Hundreds of WGA members rallied solidly behind their union last week as the industry grappled with uncertainties spurred by the sudden break between writers and their talent agency representatives. But as the standoff heads into its second week, signs of strain among some WGA members are beginning to emerge. Shalom Auslander, author and creator of [...]

  • Woodstock 50 Festival Postpones Ticket On-Sale

    Woodstock 50 Festival Postpones Ticket On-Sale Date

    UPDATED: The troubled Woodstock 50 festival has run into more difficulties, as multiple sources told Variety late Friday that the April 22 on-sale date for the event has been postponed. Agents for artists scheduled to perform at the festival — which include Jay-Z, Dead & Company, Chance the Rapper, Miley Cyrus, Imagine Dragons and Halsey [...]

  • National Enquirer - Jeff Bezos

    Hudson Media CEO James Cohen Purchases the National Enquirer

    Hudson Media’s CEO James Cohen announced Thursday that he will purchase the National Enquirer as well as American Media’s other tabloids, the Globe and the National Examiner. With the purchase of the National Enquirer, which Cohen reportedly bought for $100 million, he plans to strengthen their collaborative efforts, documentary shows, weekly podcasts, and theme parks. [...]

More From Our Brands

Access exclusive content