March 29, 2024

The Media Equation: A Different Deal Mania Grips TV

After years of small-bore shifting and tweaking by media companies in an effort to stay in front of consumers, big deals are back on the table. Using relatively cheap capital, companies in dire need of diversification away from wounded businesses like print are going shopping.

Last Monday, the Tribune Company, fresh out of bankruptcy, spent $2.7 billion to buy 19 stations from Local TV Holdings. Several weeks earlier, the Gannett Company made its own bet on going bigger, buying the Belo Corporation, with its 20 television stations, for $1.5 billion.

“It’s time to gobble or get gobbled,” a media analyst told The New York Times last Monday.

In a conference call, Peter Liguori, chief executive of Tribune, could not have been more direct or more succinct: “Our investment thesis is simple. Scale matters.”

Business people could not be blamed for thinking that they had seen this movie before. Someone blows a whistle in a particular media space and suddenly a company is either a hunter or the hunted. Rhetoric heats up, as do prices, and before you know it investment bankers are racking up fees, reporters finally have deals to cover and moguls are in full frolic.

For much of the 1990s and into early 2000s, roll-ups were all the rage and a new hyperbolic math emerged. “One plus one will add up to four,” Michael Eisner, then chief executive of Disney, said after the company announced in 1995 that it was buying Capital Cities/ABC for $19 billion.

As it turned out, one plus one did not even add up to two in that deal, and in so many others that were part of the frenzy. Merger mania failed most drastically in the instance of AOL-Time Warner, which had executives chanting about synergy and analysts panting about an “unbeatable” partnership with “insurmountable” scale.

So now that we have John C. Malone, the head of Liberty Media, talking of inevitable cable mergers, and companies buying up every television station on the loose, are they in fact heading off the same cliff?

Probably not. The media mergers that took place just after the rise of the consumer Internet were vertical mergers, intended to blend companies that were in different businesses and produce a new kind of product or company. The melding of Time Warner and AOL was a classic example: two companies that could not have been more different in terms of cultures or products sacrificed their identities on the altar of synergy. It turned into a bag of snakes with an enormous price tag.

In contrast, the deals under way now are horizontal mergers, combining similar businesses in an attempt to pile up more assets in a specific category. The goal is not transformation, but leverage, using size to cut better deals with distributors and suppliers.

Jonathan A. Knee is a media investment banker at Evercore Partners who helped to write “The Curse of the Mogul,” a book that served as one of the better obituaries of the last round of mergers. Mr. Knee says there are critical differences between the deals then and now.

“There were many mythological elements to those mergers,” he said, “but in terms of the current television environment, economies of scale are real. When you are negotiating on a national scale with other big companies, it is demonstrable that the bigger you are, the better you do in negotiations.” (Evercore, by the way, is assisting in the possible sale of the Tribune Company’s newspapers.)

Mr. Knee said that valuable mergers in the media business, whether on the cable or the broadcast side, generally involved aggregating local assets. They yield benefits, he said, because the businesses have a relatively fixed cost base.

Being big in television is seen as critical right now because it’s a maturing ecosystem of different components, each trying to gain an advantage over the others.  Cable systems want to come to the table as behemoths with a huge base of customers so big that content providers can’t afford to pass up the audience. And local television stations now depend on cable systems and retransmission fees; only about 10 percent of all viewers of local TV are seeing programming over the airwaves.

Article source: http://www.nytimes.com/2013/07/08/business/media/a-different-deal-mania-grips-tv.html?partner=rss&emc=rss

DealBook: With Nook Plan, Barnes & Noble Readies Another Shake-Up

William Lynch, Barnes  Noble's chief executive, shows off the Nook tablet at a bookstore in Manhattan.Jim Sulley/Barnes Noble, via NewscastWilliam Lynch, Barnes Noble’s chief executive, shows off the Nook tablet at a bookstore in Manhattan.

Barnes Noble is trying to shake up its business by potentially spinning off its fast-growing Nook business. This is yet another effort by the bookseller to rejigger its operations, amid a history replete with spinoffs and attempted deals.

Barnes Noble’s latest bet is that it can separate its Nook unit — its fastest-growing division, but one that demands enormous investments — to attract outside capital that will enable Nook to keep competing against Amazon’s Kindle and Apple‘s iPad. Such a move may entail offering a minority stake to public shareholders, finding a strategic investor or even selling the division outright.

Potential partners for the Nook unit could include Liberty Media, which currently owns a 17 percent stake in Barnes Noble. Executives of Liberty, which invested in the bookseller largely on the promise of its nascent digital content platform, indicated at an industry conference earlier this week that they see Barnes Noble and Nook as separate businesses.

Barnes Noble’s chief executive, William J. Lynch Jr., has said that there is no timeline for making such a decision. But analysts say that the company would be loath to give up control of a business that management has stressed could represent Barnes Noble’s future.

It is not clear what a public Nook company would be worth, in part because Barnes Noble does not yet break out the unit’s full financial information. In its announcement on Thursday, the company said it expected the Nook division to report $1.5 billion in sales for its current fiscal year, with holiday sales growing 70 percent over the comparable period last year.

John Tinker, an analyst at the Maxim Group, estimated in a research note on Thursday that at a highly conservative valuation of 0.6 times revenue, the Nook company could be worth $900 million. But he adds that a higher multiple, perhaps at least one times revenue, may be called for, given the high growth rate.

There is a question, of course, of whether Barnes Noble will proceed down this path at all. It has announced efforts to reshape its business mix in the past, only to see those attempts peter out. In 1999, the company took its Web site public, using the proceeds to market the Web site. (Even then, the portal’s sales were dwarfed by Amazon’s.)

But it reversed course four years later, offering to buy back Barnesandnoble.com’s shares at $2.50, well below the spinoff’s $18-a-share offering price. The unit never turned a profit.

And in 2010, Barnes Noble kicked off an effort to sell itself, a process that wrapped up last summer — with the sale of a $204 million minority stake to Liberty Media. During that lengthy shopping period, advisers to the company spoke to scores of potential buyers, but were unable to attract satisfactory bids, people briefed on the matter said previously.

More drastic shake-ups may still be in the offing. Peter Wahlstrom, an analyst at Morningstar, wrote in a research note that Liberty might still pursue a full takeover of Barnes Noble down the road.

Article source: http://feeds.nytimes.com/click.phdo?i=65157d030027288fecd73c8f2e9a0194