MGM to remain independent no longer?
What’s going to happen to MGM?
On Tuesday, the Hollywood studio announced it was replacing its chief executive Harry Sloan with a team that includes a turnaround expert. It’s a well-known fact that MGM, which is owned by private equity firms and Comcast, has struggled with a massive debt load. It has payments due on $3.7 billion of debt and the future isn’t looking too good, given the down market and shrinking DVD demand.
Media and entertainment industry analysts believe MGM won’t last much longer as an independent studio, according to a story in the Los Angeles Times:
Most industry watchers believe that MGM will not survive much longer as an independent studio and is likely to be sold to a bigger media company such as Time Warner Inc. or merged with another movie and TV studio like Lions Gate Entertainment Corp. Qualia Capital, a private investment firm headed by Amir Malin and Ken Schapiro, is actively looking at MGM, said a person with knowledge of the situation.
Who else could be a buyer? There were rumors earlier that investor Carl Icahn, who is a major shareholder in Lions Gate, was buying up MGM’s debt in the open market with the intention of forcing a merger between the two studios.
Then, there’s Comcast, which already owns a stake in MGM and could potentially be interested in owning MGM’s rich content librabry, which includes the James Bond films. Reuters’ Yinka Adegoke recently wrote that investors worry that Comcast will make a splashy acquisition soon. Could this be it?
Keep an eye on:
Epix nears launch date — more distribution deals coming?
Suddenly, after limited news over the past year, Epix has been very much the talk of the town in recent days. A number of publications, including Reuters, have picked up on some announcements out of the pay TV site jointly owned by Paramount, Lions Gate, and MGM.
The key bit of news, of course, was the announcement that it had reached its first distribution deal, with Verizon. Chief Executive Mark Greenberg suggested to us that other deals should be coming soon — that he is talking to everybody and “some are further along than others.”
This is key, in the eyes of Wall Street. Distribution deals are always a bit tricky, and even tougher in the current economic environment. But analysts want to see Epix sign a deal with one of the big players — one with a ton of subscribers. We’re talking about Cablevision, Comcast, Time Warner Cable, DirecTV. So far the reaction has been a little lukewarm from some of the big boys but that could just be a negotiating tactic.
That aside, there have been some other relatively significant bit of news. In case you missed…
- Epix will be launching in October, though hasn’t announced an official date. Sounds like they could be planning some sort of “event” or “special” to kickstart the channel
- The epixHD.com web site, which we’ve seen, is going to launch earlier. It’s currently in beta, and looks good. Has some of the feel of Hulu.com
- Epix, which will be home to some 15,000 films, including titles like “Iron Man” and “Star Trek” and the James Bond movies, just signed a content deal with independently owned Samuel Goldwyn Films.
What does Wall Street think of Yahoo the morning after?
The reaction to Yahoo’s earnings in the stock market this morning was relatively positive. Shares rose 2 percent right off the bat, but we’ll see what happens as the day rolls on. Meanwhile, here are what some Wall Streeters had to say about the quarter in various research reports.
Signal Hill Capital Group: While all of Yahoo’s business segments declined, display was by far the hardest hit. Display ad sales fell 27% sequentially and 13% YoY to $371 million, as premium inventory is either not selling out, or is selling at very depressed CPM’s. Yahoo’s search business declined less, but is hardly a bright spot. Search revenue dropped 9% sequentially, compared with Google’s 4% sequential decline.
Collins Stewart: Given how bad display and search ad trends were during the March quarter, we believe the earning was not bad. CEO Bartz is clearly bringing fresh perspective, sound cost management, and portfolio optimization approach, which we believe will start yielding positive results. We continue to believe that Microsoft-Yahoo search deal is very likely and silence by CEO Bartz during the earnings call suggested to us that something is brewing.
Jefferies & Co: While severe macro headwinds yielded tepid revenues, management has moved aggressively to protect margins and realign costs. We are encouraged by the new CEO’s efforts to make Yahoo! more fit, which would position it better to compete long-term and also give it more leverage in any negotiations with Microsoft.
Bernstein: Possibly one of Yahoo!’s stranger earnings calls seemed to excite the after-market – the stock was up almost 5% in after-hours trading. The company’s 1Q:09 operating performance was poor – revenues of $1.58 billion were down -13% YoY, technically lower than consensus but thanks to cost and expense reductions in the quarter earnings were in line with analyst’s expectations of $0.08/share. The call did little to shed any light on management’s strategy other than to cut headcount by 5%, outsource some under-performing businesses and generally wait until the economy improves.
Barclays Capital: Yahoo becoming more of a margin expansion story, but core advertising pressures remain & we think they are more than just macro related. We think shares are fairly valued at current 6x EBITDA, or $15. Margin expansion should provide some support and potential for a search deal or more remains, but would like to see better entry point and/or more fundamental improvement in search & display before becoming more positive on YHOO shares.
Keep an eye on:
Icahn vs Lions Gate heating up
Not so fast Mr. Icahn. Lions Gate Entertainment is trying to defend itself against famed financier Carl Icahn by hiring an advisory team, including investment bank Morgan Stanley and the law firm Wachtell, Lipton, Rosen and Katz.
It also is in talks to offer a board seat to Mark Rachesky of MHR Fund Management, the studio’s largest shareholder.
Icahn controls 14.5 percent of Lions Gate’s shares and wants to increase his sway, seemingly because he’s frustrated with things like costs and the company’s decision to buy the TV Guide cable channel.
All this has set up a potential proxy fight – perhaps a nasty one.
Who is the smart money on? Hard to tell. Icahn is an old hand at these things, but given Lions Gate’s moves on Tuesday — it also hired Joele Frank Wilkinson Brimmer Katcher, a public relations firm that built a reputation advising companies involved in hostile deals – it looks like they aren’t about to back down.
A showdown could be coming.
Keep an eye on:
The media is hungry for corporate excess
Guess where the paparazzi are training their lenses these days? For those of you who missed it, The New York Times writes that gossip rags have all but abandoned Britney Spears for the thrill of capturing corporate excesses on camera. From the paper:
The tabloid media, of course, have always peered into the excesses of the rich and famous with a mix of puritan disapproval and voyeurism. But these outlets and other news organizations are now recording troubling uses of taxpayer money at country clubs, private airports and glamorous retreats and, in so doing, explicitly tapping into a fierce populist anger at corporate America, and even pressuring Congress to hold companies accountable.
Populist indignation apart, perhaps people also feel a sense of glee when watching or reading about the severe scaling back of corporate budgets that once supported lavish lifestyles. Gawker may have captured the glee best in this biting account of The Wall Street Journal story on Goldman Sachs executives being asked to stay at Embassy Suites rather than the Ritz.
Reporters are often sent to capture nuggets of corporate excess, the more outrageous the better. An affinity for $40 crab legs? Flying to DC in private jets to ask for bailout money? Poolside sales conferences with six-figure tabs? The media loves writing about this stuff almost as much as people enjoy reading it. So if you’ve got any tips, let us know.
Keep an eye on:
- New AOL CEO Tim Armstrong sees a lot of options for AOL’s future. (All Things Digital)
- Alibaba seeks partnerships with U.S. companies. (Reuters)
- Carl Icahn says he doesn’t intend to push for a sale of Lions Gate. (Reuters)
(Photo: Reuters)
What’s next for Lions Gate?
Last week, it had seemed like Lions Gate and Carl Icahn were heading to an amicable settlement (in other words, Icahn was close to getting his way because the independent film and television studio was leaning toward giving him a board seat or two).
But things obviously soured, because talks broke down, raising the specter of a proxy fight for control of Lions Gate.
From Icahn: “Discussions have been terminated because agreement could not be reached concerning certain aspects of the standstill agreement that Lions Gate demanded as a condition of installing those board members.:
From Lions Gate CEO Jon Feltheimer and Vice Chairman Michael Burns: “Over the past three weeks, our board of directors has been in discussions with Mr Icahn to consider how we could accommodate some of his requests, including the possible appointment of his designees to the board of directors. However, the board ultimately concluded that it could not meet his requests…”
It seems Icahn wanted too much.
Last year, when the billionaire investor wedged himself in between Yahoo and Microsoft and threatened a proxy fight against Yahoo, the Internet company caved and gave him board seats. We haven’t heard a peep out of Icahn since on that front.
But clearly, things are going to be different for Lions Gate. There have been press reports lately that the corporate raider had begun buying up MGM debt in hopes of forcing a merger between rivals MGM and Lions Gate. That kind of back-door entry didn’t work for EchoStar’s Charlie Ergen in his pursuit of Sirius XM, because Liberty Media’s John Malone rode in on his steed at the nick of time.
Outlook grim for media and entertainment deals
Deal-making in the U.S. media and entertainment sectors is going to be down this year, says a new PricewaterhouseCoopers survey (request a copy here). Now, that’s not a new or startling conclusion given the state of the economy, but it’s just another piece of evidence that when consumers and advertisers get thrifty, deal makers can end up become benchwarmers as companies struggle with cost cuts and other exigencies.
Here are some industry trends for 2009 from the PWC survey:
- Declining consumer spending is hitting many media and entertainment companies. What’s more, these declines were exacerbated by technological convergence, as these firms adapt to and look for ways to make money off new Internet technologies.
- Overall U.S. advertising market is going to shrink as sponsors cut ad budgets across retail, consumer goods, automotive, financial and other sectors.
- Companies will continue to divest their non-core assets, but those that don’t get a good price will prefer to hold on rather than sell at bargain prices.
- Bolt-on deals will likely be popular for risk-averse companies, so deals below $1 billion — mostly small and mid-market companies — will be a rising trend.
- Private equity will remain quiet since the debt markets aren’t really healthy yet.
- Deal structures will change this year, given the difficulty of getting debt financing. The strategic rationale for doing a deal will be more important than getting a favorable capital structure.
But all hope is not lost, according to PWC’s Transaction Services Entertainment & Media Leader Thomas Rooney:
With M&A activity ingrained in the DNA of so many companies and the ever growing presence of private equity, E&M deal activity might not be as quiet as many expect in 2009… History has shown the E&M industry to be one of the more active M&A sectors irrespective of market and economic conditions.
And there have been a couple of deals already this year, although no mega-transactions, as the PWC report suggests. Live Nation wants Ticketmaster and Sumner Redstone’s National Amusements theater chain is being shopped to potential buyers. Could Lions Gate be next?
(Photo: Viacom chairman Sumner Redstone/REUTERS)
NBC’s super ad sales
NBC’s sports department is having quite a year. We all know about the Olympics, but now it appears they are raking in money for the 2009 Super Bowl.
The broadcaster said yesterday that it has sold 85 percent of its commercial time for the game — and a dozen spots have gone for $3 million.
It’s worth remembering that there was some snickering when word spread that NBC wanted to sell time for $3 million. I mean, come on! $3 million? In this economy?
As everyone is pointing out this morning, NBC’s Super Bowl success is a reminder that advertisers really want to be involved in the biggest events, where they can reach mass audiences.
But how far will they go? After all, $3 million for 30 seconds? What does that get you on local radio these days — a year of advertising time? And there’s no question that advertisers are facing a tough economic environment, particularly those in the auto and financial services sectors (both huge advertising industries). Let’s not forget that GM recently decided not to buy any advertising time during the Oscars or the Emmys.
Clearly, NBC is doing just fine with the Super Bowl. But where is the breaking point?
You misspelled library. librabry is not a word.