(Photo by Jeremy Moeller/Getty Images)
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Despite a globe-girdling pandemic that continues to hobble many media and telecommunications companies, mergers and acquisitions continued in 2020 at nearly the pace of the previous year, making it one of the “more resilient” sectors of the economy, according to a new report by consulting firm PwC.
“Despite unprecedented challenges, deal activity in the Media & Telecommunications sector continued at nearly the same pace as 2019, with 612 deals in the past 12 months marking just a 4% decline, while announced deal value increased by 8 percent.”
After a “virtual standstill” in the pandemic’s first weeks, activity picked up, peaking in summer and early fall, according to the report. In all, those 612 deals totaled $99 billion in value.
The deals are continuing, too, even amid a deadly resurgence of the pandemic as winter settles in. On Wednesday, AT&T
T
concluded a long-rumored deal, selling anime streaming service Crunchyroll to Sony, which already owns competitor Funimation, for about $1.1 billion.
The Crunchyroll sale comes as the telecom giant pays down more than $150 billion in debt, invests in its 5G mobile network and dramatically restructures its WarnerMedia entertainment unit for a streaming-video future centered around HBO Max.
PwC predicted other consolidation is on the way, as big companies focus on their digital strategies, and struggling smaller companies consider consolidation opportunities to scale up and better compete against digital giants.
As one example of the recent changes, PwC spotlighted Verizon’s
VZ
sale of Huff Post to Buzzfeed. On the carrier’s side, it disposed of a non-core media asset acquired during a previous CEO’s ill-fated push into online entertainment. On Buzzfeed’s side, the deal expands the company’s reach and leverage in ad deals.
ViacomCBS’ sale of book publisher Simon & Schuster for $2.2 billion represents another media company ducking out of non-core assets, even as it is edging back from legacy media such as theatrical exhibition and broadcast/pay television to beef up and rebrand its CBS All Access streaming service as Paramount+.
Of note, private-equity investments continued to grow in 2020, building on a two-year-old trend. This year, private equity investments represented 34 percent of deal volume, up from 2019’s 28 percent.
Looking forward, the report noted uneven performance across the broad sector, with a “K-shaped” recovery ahead, as some subsectors continue to thrive while others face a slow return to normal at best.
“We expect the sector’s recovery not to be ‘U’ or ‘V’ shaped, but rather ‘K’ shaped — with a bifurcated recovery trajectory that benefits more digitized sub-sectors,” the report says. “Some sub-sectors have clearly benefited from the new normal, with digital media consumption on the rise at the expense of more analog broadcasting, cable, print and theaters.”
Subsectors such as podcasting, OTT services, cloud- and app-based services, game publishing, and digital publishers are thriving in the lockdown era, and becoming attractive acquisition targets as PwC predicted they’ll continue to be a key part of consumer entertainment sources for the future. .
The big question for streaming video, music and game services is how fast wireless carriers can build out their 5G networks, a process costs many tens of billions of dollars over the next few years. When those high-speed, low-latency networks are largely omnipresent for much of the market, equally omnipresent entertainment services will be positioned to thrive as well.
That will fuel more dealmaking in telecom too, the report said, pointing to Verizon’s move into the low-end but growing prepaid sector with its proposed $6.9 billion acquisition of Tracfone, and earlier purchase of teleconferencing service BlueJeans.
Facebook and Google
GOOG
both bought into India’s Jio platforms, an example of the many Western entertainment, tech and tele companies companies trying to buy or build their way into the vast and fast-growing Indian market.
Recovery in other subsectors – those built around in-person audiences such as comedy, live events and concerts, and traditional advertising – will struggle to fully recover. As well, despite intense demand for new material, the OTT streaming services will be challenged in the near term to safely produce enough content to meet demand.
Another struggling sector, theater chains, may be the source of consolidation or other deals in coming months, the report suggested. The U.S. Department of Justice recently ended administration of the 1948 Paramount consent decrees, clearing the way for studios to own theaters again. As chains struggle to survive, and studios ponder new ways to distribute their feature-length projects online and off, “there may soon be closer ties between studios and exhibitors through M&A.”
