Is time running out on legacy TV-based media companies
to merge?
It seems investors aren’t exactly happy with the prospect of companies like Comcast Corp./NBCUniversal, Paramount Global, or Warner Bros. Discovery taking on any more debt.
(WBD got a pass of sorts some years ago when buying AT&T-controlled WarnerMedia).
Media stocks are weak, and just headed in the wrong direction.
And taking on even more debt in
another round of mergers? Investors are thinking, enough -- stop this madness.
“Equity investors have a very limited tolerance for more debt regardless of the strategic
rationale,” writes Steven Cahall, media analyst of Wells Fargo Securities, this week. “This means WBD's opportunities are primarily organic.”
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This does not mean that parts of
some of these media companies might not be for sale.
Perhaps it could be TV networks, for example -- even as Bob Iger, CEO of Walt Disney toyed with this idea some months ago before pulling
back big-time on that conversation.
More recently, Comcast CEO Brian Roberts also said he wasn’t interested.
So what remains?
WBD and others hope to sell more content to
other services and platforms like Netflix, thus shorting whatever content Max might need.
It's a reversal of sorts of when legacy media were starting up their streamers.
The
positive move here, Cahall says, is that for WBD this means “likely billions of untapped revenue potential.”
On the flip side, he adds that Max needs much more control,
estimating the viewing engagement on Max is just 27 minutes a day.
“Management is caught between scaling DTC and deleveraging through licensing deals.” What's the upside? Well, he
believes HBO will have a better slate of programming throughout the year -- now that actors' and writers' strikes are behind us.
But challenges remain for WBD and others with the need to
address how to handle network TV usage and scale, which continues to drift lower.
In addition, a new NBA rights deal -- with the near certainty of sharply higher right fees -- will yield much
lower cash flow in future years.
Everyone wants to play ball here.
Defense or offense? You need to score points... on some side of this contest.