As predicted, the Hollywood content land grab has only gotten hotter in the new year.
Just a little over two weeks into 2022, there have already been five official and rumored announcements of M&A involving major content companies.
The latest content outfit to join in on the fun is Ron Howard and Brian Grazer’s production company, Imagine Entertainment. According to reports from the Wall Street Journal Tuesday, investment firm Centricus is in talks to buy more than 70% of Imagine, which would value the company between $600 million and $800 million. Earlier reports had indicated that former Disney execs Kevin Mayer and Tom Staggs’ Blackstone-backed media venture Candle was interested in Imagine.
While Imagine’s deal is still in the works, there have been other finalized large deals over the past couple of weeks. On Jan. 10, it was announced that SK Global would be acquiring unscripted production company Critical Content from Anchorage Capital Group, and on Jan. 5, gaming company Nexon bought a $400 million minority stake in Joe and Anthony Russo’s entertainment company AGBO.
And after months of chatter, Will and Jada Pinkett Smith’s Westbrook Inc. sold a minority stake in the entertainment company to Candle on Jan. 4. Needless to say, it’s been tough even keeping up with all the deal talk that’s been happening as the pivot to streaming ramps up the demand for as much quality content as possible.
In 2021, media and telecom M&A increased 27%, to 804 deals, according to PwC. And judging by the pace of M&A activity so far this year, 2022 is gearing up to be just as busy, if not more so.
So far, it’s hard to say for sure, but the new trend of paying high prices for content looks like it may be here to stay, even if there is no real guarantee that every single acquisition will be a smart buy with great ROI.
Most of the recent money being pumped into content acquisitions comes from private equity. It’s been a good couple of years for private equity as the stock market flirted with record highs. They have the capital to spend millions and even billions to make big bets on media companies with highly desirable IP. There’s a lot of money out there to be spent and not necessarily an abundance of content players out there to be bought — hence, the big valuations we’re seeing in the market.
The aggressive move to ratchet up quantity in hopes of some hits is a strategy that has worked in the past. Case in point: Netflix. The streaming giant has seen great success with its strategy of prioritizing content quantity above all else, though it would probably argue that it delivers on the quality front as well. Netflix is set to report fourth-quarter financial results Thursday, and we’ll get a more updated look at how the content slate in Q4 contributed to subscriber growth.
The legacy media companies are trying to catch up, and their newer streaming services don’t have the scale and variety of Netflix — not even Disney. Yes, Disney has valuable IP through brands like Marvel and Pixar, but it lacks the variety its rival Netflix boasts. That was evident when it reported its latest quarterly results in November. Subscriptions for Disney+ slowed dramatically after the initial surge it saw following its unintentionally well timed pre-COVID launch two years ago. The next pulse check from Disney+ will come in a few short weeks, on Feb. 9.
Content costs money, and to some it makes more sense just to buy the content companies if they’re going to shell out the big bucks to buy up programming anyway. As we’re seeing the content fire sale get even hotter in 2022, the next critical test will be whether there's proof that the strategy of buying the studios and producers turns out to be a good investment.