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Merger Mania Dominates Talk at Sun Valley Moguls’ Confab

The yellow traffic signs that dot Idaho’s Highway 75 leading up to this mountain resort area say it all: Game Crossing.

The warnings are meant to alert drivers to watch for deer and other four-legged creatures. But as media and tech titans gathered July 10-14 for the annual Allen & Co. conference, the big game hunting was happening in the tony confines of the Sun Valley Lodge.

“Everyone is going to be looking,” said Discovery chairman-CEO David Zaslav, referring to the M&A mania. “There’s real opportunity now, particularly with the [high] multiples being paid.”

The rapidly heating environment for M&As was the talk of the conference, and for good reason. The combatants in the biggest Hollywood takeover battle in 25 years — Disney’s Bob Iger, 21st Century Fox’s Rupert Murdoch and Comcast’s Brian Roberts — were brought together as part of the salon of executives, entrepreneurs, political leaders and noted thinkers assembled every July.

But it was the tussle between Disney and Comcast over 21st Century Fox and Sky — and what these fights say about how traditional media giants see the future — that riveted attendees. The drama heightened on July 11, when another round of bidding played out. Fox raised its bid to buy out Sky, the European satellite company that’s one of the most attractive assets for Disney in its planned acquisition of Fox assets. A few hours later, Comcast responded with its second counteroffer for Sky.

Like Murdoch and his lieutenants, Roberts and Comcast chief financial officer Michael Cavanagh monitored the situation (in casual wear) from the bucolic surroundings, all the while being peppered with questions. Speculation gained steam that Comcast is shifting its focus to its $34 billion effort to nab Sky and backing down from the bidding war over the rest of the Fox assets.

The impetus for all of this wheeling and dealing is the world-shaking impact of Netflix and its streaming brethren.

Traditional media is struggling to adjust its strategies to remain competitive. The biggest players need unfettered rights to a whole lot of content, and they need to build or buy digital direct-to-consumer infrastructure such as offered by Sky in attractive U.K. and European markets. The push to bulk up to compete with the global platforms and enormous balance sheets of Netflix, Amazon and, presumably soon, Apple has fueled an “everyone’s talking to everyone” moment of consolidation for an industry that has already seen a fair amount of M&A since the mid-1990s.

The local TV station market is expected to see another burst of buying and selling that promises to reduce the number of broadcast groups to a mere handful. The cap gun went off last year when Sinclair Broadcast Group, already the biggest local TV station owner by volume, set out a $3.9 billion deal to buy Tribune Media. As the final federal approvals for that transaction draw near, there was chatter in Sun Valley about private equity giant Apollo’s decision to approach Nexstar, the Irving, Texas-based owner that has been on an acquisition tear in recent years, amassing more than 160 TV stations across the country.

Adding to all the uncertainty is the topsy-turvy regulatory environment. The Justice Department is gamely moving ahead with an appeal after suffering a bruising legal defeat in its attempt to block AT&T’s acquisition of Time Warner. Disney’s effort to buy out Fox assets had been approved by a federal judge on the condition that Disney sell off Fox’s 22 regional sports networks. On July 16, FCC chairman Ajit Pai surprised the industry by voicing opposition to aspects of the Sinclair-Tribune deal, proposing that a controversial divestiture plan be reviewed by an administrative law judge.

One of the other questions among the M&A movers and shakers in Sun Valley was whether any of the digital behemoths (count Facebook and Google as well) will ever decide to drop billions on a traditional studio or network group. Industry veteran Barry Diller, the chairman of IAC Group, said Hollywood should not hold its breath for the companies collectively known as FAANG to come courting.

Hollywood is particularly unnerved by the current wave of the digital revolution because in the past, studios have had the upper hand in financing. The old guard has finally come up against rivals that can’t be bought out. “It’s the first time that’s ever happened in media where the majors can’t purchase their competitors,” Diller told Variety. “You have an almost hemispheric imbalance, and there’s no way to correct it.”

With a few big exceptions (like Disney and 21st Century Fox), the digital giants don’t need to buy a major studio or prominent network to pursue their strategic agendas, Diller said. “They simply have more purchasing power than the studios. It doesn’t mean that you can’t compete anymore. It just means that the majors are now minors.”

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