'Everything is on the table': Analysts eye next media mega-merger amid profit push

Where is the next big media merger?

Fueled by sinking stock prices, debt-ridden balance sheets, increased competition, and a renewed focus on profitability, media and entertainment companies are reevaluating their portfolios as industry watchers expect more merger activity in 2023.

"It's a pretty good inflection point," Jon Christian, EVP of digital media supply chain at Qvest, the largest media & entertainment-focused consulting company, told Yahoo Finance. "The game has changed. It used to be just subscribers at all cost...but now [investors] need these services to be profitable."

Bart Spiegel, partner of global entertainment & media deals at PwC, added: "We're entering a chapter two of the streaming wars."


"Only time will tell, but I think everything's on the table to try to improve profitability and make the platforms more creative to their overall business," he continued.

Deal volumes and values in the media and telecommunications sector slowed in 2022 compared to last year's record, according to PwC's biannual U.S. Deals Outlook.

Over the past 12 months ending in November, there have been 3,772 deals — a 26% year-over-year decrease — with announced deal value totaling $624 billion, an 18% dip versus 2021.

The firm attributed the slowdown to higher interest rates and inflation, coupled with growing geopolitical tensions and regulatory oversight.

The FTC's recent antitrust lawsuit against Microsoft (MSFT) and its $69 billion acquisition of “Call of Duty” publisher Activision Blizzard (ATVI) and Paramount's (PARA) blocked sale of Simon and Schuster serve as the latest examples of this more combative regulatory environment.

The Microsoft-Activision deal, along with Elon Musk's $44 billion Twitter takeover, were the two largest deals announced in the media and telecom space this year.

The report included all deals announced in 2022 — regardless of whether or not they closed. Amazon's $8.5 billion acquisition of MGM and WarnerMedia's $43 billion merger with Discovery did not count toward this year's total as they were announced prior to 2022.

'Consolidation will happen'

Paramount CEO Bob Bakish doubled down on consolidation, more M&A in media
Paramount CEO Bob Bakish doubled down on consolidation, more M&A in media (Andreas Rentz/MTV via Getty Images)

Amid this shifting landscape, media executives have floated merger and consolidation possibilities.

Paramount CEO Bob Bakish recently revealing during a UBS media conference earlier this month: "Consolidation has been the rule in business for a long time, certainly been the rule in media. So, it’s hard for me to bet on anything other than consolidation will happen in the future."

Jason Kilar, former CEO of WarnerMedia and the founding CEO of Hulu, wrote in a Wall Street Journal op-ed published earlier this month he expects, "two or three major mergers and/or acquisitions involving entertainment companies in the coming 24 months" as cash flow challenges deepen.

Streaming losses have mounted in recent years as the cost of content continues to skyrocket.

Disney's (DIS) direct-to-consumer division shed a whopping $4 billion-plus in its fiscal 2022, which ended on October 1, while Paramount guided streaming losses would total about $1.8 billion this year — higher than Wall Street expectations.

Warner Bros. Discovery (WBD), which has slashed its market cap in half amid its messy restructuring efforts, reported free cash flow of negative $192 million in the third quarter, compared to $705 million in the year prior. The company now plans to take on $3.5 billion in content impairment and development write-offs by 2024.

As WBD struggles for direction, many industry insiders believe the embattled company will sell again — making it a possible acquisition target in 2023 and beyond.

Another asset for sale will be Lionsgate's film and TV studio, which the entertainment giant plans to spin off into a separate company, while AMC Networks (AMCX) continues to undergo a restructuring that could result in a sale.

Needham's Laura Martin wrote in a recent client note Paramount could be attractive to unload, while smaller players like WWE (WWE), Curiosity Stream (CURIW), and Chicken Soup for the Soul (CSSE) will likely sell due to their size.

Disney CEO Bob Iger will also face a slew of decisions — including what to do with notable assets like Hulu (sell it to Comcast?) and ESPN (spin it off?).

Disney's Chief Executive Officer Bob Iger speaks during the Bloomberg Global Business Forum in New York City, New York, U.S., September 25, 2019. REUTERS/Shannon Stapleton
Disney's Chief Executive Officer Bob Iger speaks during the Bloomberg Global Business Forum in New York City, New York, U.S., September 25, 2019. REUTERS/Shannon Stapleton (Shannon Stapleton / reuters)

"There's definitely going to be assets for sale in the market," Mary Ann Halford, partner at Altman Solon, said. "The bigger question is: What do we see coming out of the very large media companies? And we've also seen that the tech giants have been rather slow to scoop up these assets."

As for tech behemoth Amazon (AMZN), Amazon CEO Andy Jassy said in an interview at The New York Times' Dealbook Summit last month, "I do think over time we have opportunities to make our Prime Video business a standalone business with very attractive economics."

"Customers would like to go to a place and find everything they want, they don’t want to go to 5 or 6 different places," Jassy said.

What will drive M&A?

PwC noted demand for live sports, including sports-adjacent industries like sports gambling, will likely drive future M&A activity.

"There is so much money in sports, and getting live sports onto the streaming platforms is an area that is still not completely tapped," Qvest's Christian said. "The question there is: Can they put a pencil to it? Because the price is so high for the content. Are they now going to be able to get the subscribers necessary to be profitable in that business?"

Spiegel agreed that rising content costs will likely pressure future dealmaking, although more disciplined content spend could force platforms to partner up in order to offset production risks.

HOUSTON, TX - NOVEMBER 03: Amazon Thursday Night Football analysts: Tony Gonzalez, Charissa Thompson, Ryan Fitzpatrick, Andrew Whitworth, and Richard Sherman prepare for a pregame live shot before the football game between the Philadelphia Eagles and Houston Texans at NRG Stadium on November 3, 2022 in Houston, TX.  (Photo by Ken Murray/Icon Sportswire via Getty Images)
Amazon Thursday Night Football analysts prepare for a pregame live shot before the football game between the Philadelphia Eagles and Houston Texans at NRG Stadium on November 3, 2022 in Houston, TX. (Photo by Ken Murray/Icon Sportswire via Getty Images) (Icon Sportswire via Getty Images)

Other M&A opportunities could revolve around movie theaters, as box office ticket sales struggle to reach pre-pandemic levels, and video games, which provide lucrative monetization opportunities through franchise intellectual property (IP).

"A lot of these media companies are relying on their existing IP to monetize in the market across geographies and windows, as opposed to investing heavily and creating new IP," Spiegel said, citing profitability concerns. "More traditional video game companies have that IP [and] also have the engines and technologies that help in the content creation process."

Overall, though, the biggest M&A opportunity will be content — especially as consumers become more choosy with their subscription plans.

"Content and IP will always be attractive, because, not only is there a direct ability to monetize that existing content, IP, or library, but also the tangential opportunities to monetize through sequels or other types of storylines," Spiegel said.

"You can look at so many different things, but you need to have quality content," Christian added. "Content is always going to be king."

'It's a tough world for financing'

As recession concerns weigh on investor sentiment heading into the new year, PwC predicated a negative impact on valuations.

"It's a tough world for financing so [private equity] is more sitting on the sidelines right now," Spiegel said.

"There's likely going to be a gap between what sellers expect for the valuation of their properties, versus what buyers are willing to pay, because you have a diminished buyer pool and the access to financing is much more expensive," he said.

Still, "I do expect private equity will return — they're sitting on a significant amount of dry powder, but we just have to wait for the markets to come back in their favor."

Altman Solon's Halford added higher interest rates will fuel macro challenges after the Federal Reserve delivered investors its seventh and final interest rate increase of 2022.

"When people are looking to buy out something with equity and debt, the interest rate environment is definitely a headwind," Halford said.

However, Halford said there will still be assets for sale next year, even with these challenges: "Wall Street is going to be on [these companies'] tails."

Alexandra is a Senior Entertainment and Media Reporter at Yahoo Finance. Follow her on Twitter @alliecanal8193 and email her at

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