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Sun Valley: Why the Era of Big Media Consolidation Is Fizzling

Have you heard the one about the era of big media consolidation?

It’s a yarn that moguls and Wall Street watchers like to spin. In this oft-told story, the rulers of television and film kingdoms will decide to join forces to stave off rampaging armies of digital disruptors or will have no choice but to open their gates and let a technology upstart grab their thrones. Expect it to be all the talk at this year’s Allen & Co. media and technology conference, which is unfolding this week in Sun Valley, Idaho. The only problem is that despite being repeated as conventional wisdom, this era of mega mergers between Hollywood players and Silicon Valley titans has yet to pass.

That’s not to say there haven’t been unions. One in particular, the $85 billion acquisition of Time Warner by AT&T is still awaiting government approval. Despite speculation that the pact would set off a wave of media mergers, it’s hardly inspired a ripple of deals. In fact, the gaudiest purchase was Amazon’s $13.7 billion acquisition of Whole Foods. It doubled down on groceries, not movies.

“Ten months later nothing has happened,” said Rich Greenfield, an analyst with BTIG. “The media sector is troubled. There are subscriber declines and dwindling ad revenues. The question is why other companies have not followed suit?”

The environment is certainly ripe for some unions. Silicon Valley players like Amazon and Apple have deep pockets and have begun to make moves into the content space. If they’re serious, there are studio lots filled with people who make superhero blockbusters and binge-worthy shows for a living. Moreover, interest rates are low, making some impulse buys easier to explain away on the balance sheets. Facebook’s market capitalization is $450.92 billion, while Viacom’s is $13.96 billion — these technology giants clearly have the financial means to pay a premium for a media company.

“If Apple has all this cash it might be smart to buy an AMC or someone who has all these great shows,” said Robert Routh, an analyst with FBN. “You’re buying expertise and other intangibles that, let’s face it, most Silicon Valley folks don’t have.”

There’s also some attractive examples of distributors and content creators making beautiful music together. Comcast, a telecom giant, has seen its influence grow following the 2010 purchase of NBCUniversal. Likewise, the studio has been granted the resources it needs to keep churning out “Fast & Furious” sequels and “This Is Us”-style “water cooler” favorites, allowing it to rise to the top rungs of the media caste system.

Media companies have their own reasons to flirt with buyers. Their stocks have taken a beating in recent months as fears have intensified about the longterm viability of the cable business. Subscribers are cutting the cord for cheaper digital options such as Netflix, jeopardizing the retransmission fees that media companies charge cable providers for the privilege of carrying the likes of ESPN and Fox News. On the film front, a summer box office swan dive, isn’t improving the sense of pessimism that this is an aging business.

“There’s been a reset of expectations for the sector,” said Tuna Amobi of CFRA Research. “There’s a confluence of concerns that are weighing down the share pice. People are taking a wait-and-see approach.”

One nagging road block to a glorious age of dealmaking is a lack of assets to buy. Jeff Bewkes spent years streamlining Time Warner, spinning off business units like Time Warner Cable and AOL in a bid to make his company more digestible. He all but slapped a “for sale” sign on the Warner Bros. water tower.

Other media companies have been less enthusiastic about joining the party. Many analysts would like to see Sony auction off its film and television arm, but CEO Kaz Hirai has been unequivocal in stating that the studio is not for sale.

Likewise, corporate infighting at Viacom led to speculation that the controlling Redstone family might be willing to part with the company behind Nickelodeon, Paramount, and MTV. However, with Shari Redstone now firmly in control, and former chairman Philippe Dauman sent packing, Viacom is in rebuilding mode and the Redstones don’t seem interested in selling low.

After failing to snag Time Warner a few summers ago, 21st Century Fox has set about getting bigger this year. It’s shelling out $23 billion for full control of the European pay-television operator. That’s not the kind of expense you take on if you’re ready to throw in the towel.

And a New York Post report that Disney and Verizon may get hitched is viewed as half-baked. For one thing, the telecom company would have to pile on debt to buy the Mouse House, for another, Disney, with its stable of LucasFilm, Pixar, and Marvel, seems more buyer than seller at this point in its lifecycle. Bob Iger, Disney’s chief, won’t be at Sun Valley this year, so any mega merger with Verizon won’t be cooked up on those Idaho mountain trails.

That leaves the AMC’s and Charter’s of the world fielding the most speculation, and, though they have many attractive assets, they may not have the portfolio of recognizable entertainment brands necessary to move the needle.

There’s another reason that Mark Zuckerberg and Jeff Bezos aren’t waving around their checkbooks. Netflix may be proving that there’s no special sauce to getting into the movie and television business. It has licensed shows such as “House of Cards” and “Orange is the New Black,” and has made the transition to creating its own in-house projects such as “War Machine” with Brad Pitt and “Bright” with Will Smith, all without buying a studio. In the process, it hasn’t been saddled with long-standing agreements with cable providers or movie theaters, enabling it to immerse itself fully in the streaming revolution taking place.

“All it takes is an investment of billions of dollars to create high-quality programming,” said Greenfield. “Netflix showed you can build a studio yourself. It makes it more likely that Google or Apple or Facebook will build something from the ground up rather than buy.”

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