3-2-1nsight: Bespoke Media Acquisitions
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There’s been a large influx of news earlier this week about technology companies looking to acquire media companies. The valuations that have been thrown around caused me to look deeper and try to understand if there was any truth to this speculation or just slow news days. Digging deeper, it’s easy to understand and justify those prices when considering the anticipated subscriber growth that appears to be hitting every major streaming platform. Bespoke IP is the most effective way to reverse that trend, read on to find out why.
3 Stories
LeBron James’ Entertainment Firm Explores Sale at Valuation of Up to $750 Million - The Information
I get goosebumps whenever I hear the phrase, “Welcome to the Space Jam,” and those goosebumps were waiting to come out this Friday when LeBron reboots the Space Jam franchise on HBO Max. But the goosebumps came even earlier when the Information reported that LeBron’s combined production studio, marketing agency, and content hub was on the market at a cool price of close to $1B, after only being around for a year. Nike expressed interest in acquiring the company, as it’d allow Nike to create content across a spectrum of mediums with an existing roster of celebrity athletes. That content could be licensed to other distributors to extend its brand further (imagine what a Nike’fied version of the Netflix Naomi Osaka documentary would look like). Nike has no production experience, but buying LeBron’s company to create more compelling stories, actually makes more sense than Nike purchasing something like a Peloton. Because Nike’s always been a storytelling company that happens to sell shoes (wait til next week to learn more about this), and the recent success of its Consumer Direct Offense could make this an accretive acquisition for Nike.
A24 Explored Sale for $3 Billion - Variety
A24 the indie film studio that’s best known for bringing us Oscar-winning Moonlight, Euphoria, 2 Dope Queens, Hereditary, Uncut Gems, Minari, and most recently Zola is looking to sell for $3B. A24 doesn’t have any long stemming franchise IP like MGM, they do have the cache amongst so many in Hollywood and can attract some of the best talents in the industry. As well, A24’s existing library has proven to be very attractive amongst many niche audiences. A24’s ability to showcase unique stories gives it a unique appeal that’s especially important for the Gen Z consumer who has a bit more fragmented taste. The marketing team at A24 can consistently activate. The studio has an established distribution mechanism for the platform and wide releases, which so many studios these days currently lack, or take for granted, which would make the operational expertise of the A24 team an asset to a potential non-Hollywood buyer.
Reese Witherspoon's Media Company, Hello Sunshine, Is Exploring a Sale - WSJ - WSJ
Reese Witherspoon combined her production company five years ago to create a woman story-focused film, television, and digital media company. Essentially a younger white woman’s version of Oprah’s Harpo Inc. Reese navigated Hello Sunshine, much like Oprah with Harpo, by creating a book club, posting and promoting the company on all her channels, and creating a dedicated TV channel. Unlike Oprah, Reese is now trying to sell her media conglomerate for $1B because there’s a demand for a media company that can create so many varied types of media across traditional and digital channels. Their ability to find, develop and produce film and television that’s appealing and relevant to women and niche audiences.
Takeaways
Lagging subscription growth is forcing platforms to buy media companies.
Recently Disney reported slowing growth in subscriptions over the year, as North America only saw an extra 1MM new subscribers since 2021. Netflix is expecting to report only 1MM new subscribers globally for all of Q2 2021. While COVID did wonders last year accelerating subscription growth for these platforms, these platforms are now facing the harsh reality that signing up new customers who aren’t already interested in their mass appealing franchises is hard. Amazon kicked everything off when it announced its purchase of MGM for $8.5 billion, which the Federal Trade Commission is now reviewing. Having access to unique content is the most vital differentiator for many streaming platforms as they try to gain subscribers. The second most crucial differentiator is pricing, but unfortunately, out-competing on price is a game no one wants to play. This truth is why so many platforms are now doubling down on trying to buy media companies to get access to those audiences and own those unique platforms’ content libraries.
Media companies need to have or create content that can extend across mediums.
The three media companies listed above are all similar in how they’ve been able to cultivate cultures that allow for the creation of bespoke IP. The specialty and expertise of these companies, though, span a varied spectrum. A24 specializes in film and television production, as well as film distribution. Hello Sunshine focuses on telling female-driven stories on film, TV, and digital platforms (vertical video, podcasts, live streaming, web series, etc.), as well as a book curation club that’s a digital extension. Finally, the Springhill Company is a film and television production and brand house that hosts and produces unique branded content under the umbrella of Uninterrupted, More Than An Athlete, The Shop, Kneading Dough, Etc. These companies create and make bespoke content that’s aimed to be for film and television, but they also have digital production availability to extend their brands. A24 doesn’t publish books, but they’re frequently the preferred destination for authors who want to adapt their books to television. Hello Sunshine has a digital app experience that pairs with the book club to create and distribute more media experiences to consumers. Collectively, these companies can demand a higher premium because they’re not just film and television operators. They’re media experience creators and curators that create direct bonds with their consumers or can activate fans of specific IP to consume content across their mediums. These companies’ production flexibility and extensibility capacity let them stand apart and demand a much higher valuation despite having a much smaller library than MGM.
1nsight
Bespoke IP is the most in-demand asset.
Content for the masses is about to become overrated. While it’s true, every platform wants single franchises or pieces of content that can appeal to most people, for streaming services, that might no longer be enough. Because of the accelerated growth and increase in subscribers spurned by COVID, there is a reality that all the low-hanging audiences and customers are already subscribers for these streaming platforms. As streaming platform companies move into the next phase of growth, there is even a greater need to own bespoke content to differentiate yourself from the other platforms. Platforms with vast content libraries that appeal to mass audiences (Netflix and Disney) are crucial, for the other streaming platforms that don’t have that kind of content in their library will need to get it to keep their consumers and attract new watchers. That’s the motivation behind Amazon’s purchase of MGM. The benefit of having stable franchises like James Bond, Rocky, and Legally Blonde is that even viewers with the most distinct tastes enjoy these movie franchises made for entertaining the masses. Now consider Netflix and Disney, which already have vast libraries with content appealing to so many groups. There is a need to own bespoke content, as it becomes an appreciative cost to access niche audiences they could never attract in the past.
While many scoffed at the $750MM price tag for LeBron James’ Springhill Entertainment, when you consider its ability to reach men and sports fans that would also enjoy any streaming services’ mass libraries, that price quickly justifies itself. Think about how valuable “Space Jam: A New Legacy” is along with their bespoke sports IP with franchises such as the Uninterrupted, More Than An Athlete, The Shop, Kneading Dough, Etc. All these franchises also span across media formats from tv to video to podcasts. Few media companies can balance the ability to have and create content appealing to the masses and use those same operations to produce bespoke content that attracts the most fickle media consumer.
