Luke Morris, Corporate Finance Partner asks if the established players in the entertainment sector can still succeed as the sector grows – but doesn’t necessarily innovate.
You know that a sector is starting to get a bit tasty if even Rupert Murdoch feels that it's got too big for him and he can no longer make any proper money from it. But that's what's happening with the entertainment space, best exemplified by the recent sale of Sky’s entertainment assets to Disney for a reported $71 billion.
On top of this, to relatively little of the usual fanfare, Apple launched its woefully-named video on demand service “Apple TV+”, clearly a play against Netflix, Amazon Prime, Google FireStick, et cetera et cetera. It might as well be called Betamax or MiniDisc.
Little fanfare, because unlike many of the keynotes in the Steve Jobs days, there was no amazing product reveal at the end. It didn’t feel “hot”, revolutionary, or likely to change the way we live our lives. High expectations, sure, but that’s where the bar is set for Apple.
No iPad, no iPhone, nothing revolutionary. It feels like they’ve run out of ideas. Instead a rather awkward looking Oprah Winfrey and Jennifer Aniston on stage, celebrities from an earlier era. Does this mean that the company with the largest cash reserves of the world, some $250 billion (twice the wealth of Croatia, in case you were interested) basically has no imagination left as to what to do with its money? But then, looking at politics in the world at the moment we all seem short of imagination.
Something we can say in respect of global M&A in the entertainment sector is that the established players, often under significant state or government influence, are creaking at the seams as technology has democratised the space they had previously monopolised. Here in the UK, the BBC, which reputedly touches 90% of households each week, is struggling to face the facts of the new world, with many poor reviews for its Sounds app, and questions being asked about the forthcoming paid-for video streaming service, Britbox.
Right now we are seeing corporate valuations topping out, and starting to decline, with so many uncertainties on the horizon. These uncertainties suppress projected earnings, and therefore suppress corporate valuations. Not all industries are affected. Some sectors are Teflon at the moment: anything with IT, artificial intelligence, medical or healthcare in the title for example. But our experience of recent transactions in the media and entertainment space reflects the cautious outlook of Mr Murdoch. Not the best time to get the best price, but some interesting opportunities for the truly disruptive.