Hollywood studios have long understood the value of partnering to share the pain and gain of big, expensive releases. Now, thanks to the recession, media companies are replicating that strategy with the hope of showing growth without big financial outlays.
Take NBC Universal and Disney-ABC. The two own rival broadcast networks but are in advanced talks to become partners—with Hearst Corp.—in a new cable powerhouse that would add Lifetime to the A&E Television Network fold. NBCU owns a 25% stake in AETN that Disney-ABC and Hearst, which own the balance, want to wrap together with their other joint venture, Lifetime.
Six weeks ago, Disney-ABC joined NBCU as a part-owner in online video company Hulu, which also counts News Corp. and Providence Equity Partners among its shareholders. NBC Universal's long-term plan, however is to exit the AETN/Lifetime venture.
The examples are numerous, but many industry observers see a lot more coming. Dennis Miller, a general partner at Spark Capital, says more partnership deals are waiting in the wings. “In times of uncertainty, you will see a healthy degree of paranoia and a greater trend toward shared risk,” he says.
Miller explains that financial firms are looking to use their leverage, while media companies are seeking to share financial risk. Wall Street media bankers Joseph Ravitch, a former Goldman Sachs executive, and Jeffrey Sine, a former UBS M&A chief, are joining up to build a new media fund to partner with media companies. “The trick is in finding when one plus one equals two,” Miller adds.
Practical concerns
Mark Edmiston, managing partner at New York-based AdMedia Partners, observes that “given the economic situation, there's much more attention paid to making a partnership rather than trying to acquire those assets. Time Warner was acquiring properties, now they're talking to people about partnerships. I don't think this is driven by strategy; it's practical.”
While Time Warner has the cash to do deals, shareholders at major media companies remain queasy about big buys, forcing CEOs to wait out the market. One media deal-maker says his calls from clients were about their endless headaches. Few wanted to add to the difficulties with further acquisitions.
Cross-industry cooperation is also in the ether. Take, for instance, the cable industry's Canoe Ventures, the interactive platform launched last June that aims to super-size the amount of advertising coming to cable operators. “This is not a pipe dream among six wandering MSOs,” CEO David Verklin said recently in describing the company's status in building out its vision despite the baggage of having multiple cooks in the broth.
Even those companies doing well are looking for new ways to fund growth in a down market. At Discovery Communications, CEO David Zaslav reached out to Oprah Winfrey to partner on a new lifestyle channel, OWN. Oprah brings cache and contacts, while Discovery brings carriage deals and cash. The Silver Spring, Md.-headquartered firm also agreed to a deal with toy firm Hasbro, which will help it reprogram Discovery Kids with shows from Hasbro's library.
Observers say to expect more of the same given Zaslav's penchant for deal-making. Indeed, Discovery's hiring last week of turnaround expert Henry Schleiff to lead Investigation Discovery is prompting questions about whether the factual giant might look to share the load on that service, too.
Even on a smaller scale, programmers continue to get together in previously unheard-of partnerships. Take NBC's decision to share windows with MTV on I'm a Celebrity, Get Me Out of Here and with DirecTV on Friday Night Lights.
“Adversity brings strange bedfellows together,” says Porter Bibb, managing partner at Mediatech Capital Partners. “Everybody is saying, 'Why not?' It lessens the risk. Everybody is now thinking about partnerships because technology is developing so fast.”
Last fall, everyone thought the world was coming to an end, according to Edmiston, but he says that within the last few months people are now saying, “We need to add and be more efficient and acquire the expertise through a partnership. There is money saving, but it's more about getting the right assets into a team without buying them.”
Hal Vogel, president of Vogel Capital Management, remarks that the biggest advocate of partnerships has always been Liberty Media CEO John Malone. “He never does a deal in a straight line,” Vogel says. “It's always a partnership or a tracking stock; you give me this and I'll give you that.” Indeed, rumors are that AT&T might buy Liberty Media's DirecTV. The two are partners in advanced media bundles.
“It is a trend,” Edmiston declares. “How long is it going to be? It's hard to keep these things going in the same direction. This is a temporary phenomenon, but it may be multi-year.” He predicts that as the economy improves, more traditional mergers and acquisitions may again become commonplace.
