MediaTalk | Season 3 | Ep. 49 - The Future of Media in an M&A Frenzy

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Mike Reynolds: Hi, I'm Mike Reynolds, a senior reporter covering the media industry with S&P Global Market Intelligence's Tech, Media, and Telecom news team. Welcome to Media Talk, a podcast hosted by S&P Global Market Intelligence. We're in the news and research staff exploring issues in the ever-evolving media landscape. Today, we're going to discuss a few major M&A deals that have been creating headlines of late and could transform the media landscape, both in the streaming realm and on the linear side for years to come. Helping us make some sense of this activity are a quartet of Kagan research analysts: Justin Nielson, who is head of Kagan Research; Seth Shafer, a principal analyst who leads Kagan's streaming video coverage and its consumer insight segment; Scott Robson, a principal analyst covering US networks and sports; and Mike Johnson, MJ, a research analyst covering the US sports beat. How are we doing today, guys? 

All: Doing well. 

Reynolds: Thanks for joining us. We appreciate it. It's been a while since there's been so much M&A chatter in the media realm. We talked about this last year in Media Talk. Skydance Media, run by David Ellison, Oracle founder Larry Ellison's son, was making a run at Paramount Global. Sherry Redstone, Sumner's daughter, squashed the deal at the 11th hour. But as the M&A world turns, Skydance Media finally purchased Paramount Global in August. It didn't take long for now Paramount Skydance to make a run at Warner Bros. Discovery. That happened in October. Now Netflix and Comcast are in the hunt on the broadcast side. Nexstar, the largest US station operator, made a $6.2 billion bid for TEGNA. Now, Sinclair wants to buy E.W. Scripps. Just a few things. Okay. Just in, what do you make of the M&A frenzy as 2025 winds down? 

Justin Nielson: It's interesting in the aspect that I liken this back to about 10 years ago in the broadcast space where you saw a lot of consolidation as part of some regulatory moves. I think the same is going to happen this time around. 

Reynolds: Seth, how about you? What do you think? 

Seth Shafer: Yeah, just from the streaming side, when we do our end-of-year trend predictions for the coming year, we've been talking about M&A for like three or four or five years now, acknowledging that households are juggling a lot of services. The streaming services have become commoditized where there's not a lot of differentiation other than the content. And so in that scenario, it makes a lot of sense for consolidation to happen. So I think we're finally seeing that here at the end of this year, moving into next year. 

Reynolds: Scott, do you think stuff's going to happen here? 

Scott Robson: Yes. I think it's a pretty exceptional time in media right now as we're seeing major media companies that have been long-running institutions kind of change hands. There has always been M&A in media, but this round seems to be pretty significant, especially as it relates to the linear TV network industry. When you consider the spinoff of and possible split of Warner Bros. Discovery, it's been a long time coming, but it seems as though the streaming takeover, so to say, is in full swing, and linear networks are taking a backseat for many media companies. 

Reynolds: Mike, if some of these combinations come together, there's going to be some big changes in the sports rosters for some of the surviving companies. 

Michael Johnson: Yes, absolutely. Sports are involved in everything nowadays, and rights are a critical part of the content pipeline feeding the TV networks and streaming services. Nowadays, it seems every day there's a new viewership record that drops. So securing these valuable sports assets is a critical part of any potential deal that takes place here. 

Reynolds: Okay. Justin, can you take us through Nexstar's ambitions with buying TEGNA? 

Nielson: Sure. So it was an all-cash deal, $22 per share for TEGNA, announced back on August 19th and most recently approved by the TEGNA board. It's Nexstar's largest TV station deal by volume, second largest by stations, looking back on the Nexstar Tribune merger, which included 42 stations back in 2019. The other thing to consider here is the kind of synergies between the two companies, Nexstar and TEGNA. There's a lot of markets where they overlap in terms of big four affiliations. The combined revenue has been forecasted to be about $7 billion to $8 billion annually. We looked at it from a percentage of TV household reach, and looking at it on a non-UHF discounted basis, it reaches about 78% of the US TV households. So it's a massive deal for both companies; it would put them squarely leading in terms of the number of stations and the number of markets that they would be in. The wrinkle is they still need regulatory approval. There's still the 39% FCC national ownership cap. There has been a lot of movement from the FCC and Brendan Carr as chairperson in terms of removing or giving some relaxation to that cap, also with the duopoly rules, so they basically put the cart before the horse, I guess you would say, putting the deal out there before the rules had changed. 

Reynolds: And for its part, Sinclair is the No. 2 station owner. They want to get bigger too, and Scripps is in their sights. 

Nielson: Yeah, that deal would include stock and cash at $7 per share for E.W. Scripps. It's an unsolicited offer. Scripps is still saying that they're going to look at this in terms of reviewing it with the board members. I'm less optimistic in terms of that deal currently because it looks like the tie-up would help both companies in terms of scale and leverage, especially around content and sports rights deals, but two different cultures. 

Reynolds: Yeah, I gotcha. And the poison pills in place. Yeah, I guess there. Scripps management not exactly enamored. So we'll see how that goes. Alright, let's move over to the Warner Bros. Discovery side. Seth, start with you. It's been reported Netflix and Comcast want Warner Bros. Discovery's studio and streaming businesses. What would it look like if Netflix would have finished on top here? 

Shafer: So I think for Netflix, and they've tipped their hat that they're just bidding really on the studio streaming side of that. They're really after sort of intellectual property there, I think, and really the franchises as far as Harry Potter and DC Comics. Netflix has not been very acquisitive at all outside of some small acquisitions with their gaming initiative. They've really built everything from scratch and they've had success in the Disney route of building up franchises with Stranger Things. But they're really at a point, I think, where they would like to accelerate that. And so the easiest way to do that is to buy it, versus building it out over years and years. They've also said that they would still be in the film business. 

Reynolds: Which is a good thing for many, I would think. 

Shafer: Yeah, exactly. And it would, to some extent, sort of silence… I think there have been more and more stories about frustration that Netflix isn't playing more aggressively in the theatrical market, that they do very limited runs to qualify Netflix original films for awards. But that's about it. And this acquisition would see them play a larger role in the traditional sort of theatrical release world as well. 

Reynolds: Okay. How about Seth on the Comcast side? Speaking of theatricals, Universal Pictures and Warner Bros. would make for a nice studio pairing, and needless to say, Peacock, NBC's aggregate streaming service could use a customer boost. It's been stuck at 41 million for a while now. Seth, your thoughts on Comcast here? 

Shafer: Yeah, and Comcast is a bit different. So one advantage, dipping back to Netflix, Netflix now with over 300 million paid subscribers worldwide, they're in every market, everywhere. Comcast Peacock is very different. That's still a US-only service, so they do have on the international front some streaming efforts, but they're very small with Hayu and then Sky, Showtime. So for Comcast, this combined entity would give them a foothold in some international markets as well. And like you say, give Peacock a bit of a shot in the arm here in the US. We were chatting before we officially started recording, but the sort of middle tier of US streaming services, Peacock, Paramount+, HBO Max are all in that same high 30 million, low 40 million subscriber range. So for Peacock, definitely would be a boost there. 

Reynolds: Gotcha. Bloomberg had a report that Comcast is looking to merge its NBCU division with Warner Bros. Discovery, where Warner Bros. shareholders would receive a combination of cash and stock. Comcast would be eyeing to create a much larger entity combining its NBC TV network, the film and TV studios, and the theme parks with Warner Bros. Again, it would boost Peacock. Any quick reaction to this? I guess David Zaslav would still be involved according to Bloomberg. Here, quick reactions. Justin, what do you make of this? 

Nielson: It makes sense to me in terms of the tie-up. You've got the studios, you've got the streaming businesses, and then you've also got the cable networks in combination. So does that mean that the Versant and Warner Bros. Discovery spinoffs become more in one entity and then you've got the streaming and the studios and the broadcast business? I don't know. But it does seem like a lot of content for one group owner. 

Reynolds: Seth, you had just, we just talked about the streaming aspect here. This would make a gigantic company as Justin just mentioned. 

Shafer: Yeah. And we're on the hot seat here, as far as not having as much time to formulate. Literally, I think 15 minutes before we started, this broke. But I think the other issue, and we may touch on this later, but for better or for worse, the feeling with all of these bids is that Comcast would be the most challenged in getting regulatory approval. And that was even for smaller ambitions of just going after the streaming studio side, that was even prior to what we're discussing now. 

Reynolds: Sure. 

Shafer: But that said, if Comcast made a run at this, they would basically have to go big. Because Warner Bros. Discovery's board would be faced with, if they would agree to bid, then it's going to be a drawn-out approval process. It might initially be denied; it might go to court. So it makes sense to me that they may be going big, like we're talking about, if this is really going to be their best offer for a protracted kind of deal that would take a while to get done. It makes sense to go for it with that bigger combination. You just sketch it out. 

Reynolds: Okay, Mike, big sports would be at play here, right? 

Johnson: Yeah, no doubt. I'm not sure exactly how the sports rights would shake out in this scenario. You'd have a massive portfolio with NBC Sports, Peacock, NBC Sports Network, and it would include the major sports like NFL, MLB, NBA. Now you'd have Big Ten college football, golf, Premier League. The Olympics would be massive as well because Warner Bros. Discovery has the international rights combined with Comcast owning the US rights. Yeah, just a massive sports portfolio that would result from this. 

Reynolds: Alright. I think as the report suggests, and this is what we've been talking about before, Scott, again, the spinoffs of Versant, the NBCU cable networks minus Bravo, and Warner Bros. Discovery cable networks and some of its broadcast holdings internationally into a global networks business. Scott, can the cable businesses survive, or maybe they can survive, but can they thrive at this juncture? 

Robson: Yeah, I think the media companies distancing themselves from linear makes sense at this point. As the industry is in decline, it doesn't appear as though linear will have some kind of magical rebound here. But those assets still generate profits, so they aren't worthless. The main strategy seems to be consolidation here, which will reduce costs through synergies, and the strength of scale will be important as linear winds down. Now, the cable networks are still in around 60 to 70 million homes in some cases. So it's a very real business. I think the spun-off assets have the opportunity to join forces like we just mentioned and stay afloat for the foreseeable future as we don't really anticipate the number of pay TV homes dropping to zero anytime soon. So yeah, there will be a drag on profits and revenues, so it won't look great from an investor standpoint, but I think that Comcast and Warner Bros. are making smart business moves here by spinning off the declining cable networks and focusing on the streaming future. 

Reynolds: Alright. For its part, Paramount Skydance is looking to buy all of Warner Bros. Discovery. Warner Bros. Discovery Studios/Paramount Pictures, which is upping its slate to 15 theatricals next year from, I think, eight — that would be a major boost. They would also purchase all the cable networks, so you're talking about some of the industry's top brands on the Warner Bros. Discovery side, including TNT, TBS, Cartoon Network, Discovery Channel, TLC, Food Network, and HGTV. These have been named brands over the decades. Could that work, Scott? That would — you have a better sense than I do — how many networks would they have under one roof? 

Robson: Yeah, so if Paramount buys all the Warner Bros. Discovery networks, it would result in the largest cable network portfolio in the US with around 60 networks under the same umbrella. Now these networks would make up about 40% of total cable network industry advertising revenues. As you mentioned, it would include many of the top-rated cable networks spanning a wide array of genres, news, sports, and reality TV. So I think there would be the potential to consolidate some networks. But at this stage in the game, it might make sense to just keep as many on air as possible in order to continue to generate incremental affiliate fee and ad revenues. So we certainly could see some interesting crossover content if this happens: MTV reality stars going on Food Network competitions, something like that. But yeah, it would be a large portfolio of networks for sure. 

Reynolds: Mike, we talked about a pairing of Warner Bros. Discovery holdings and NBC Sports. Paramount Skydance and Warner Bros. Discovery would be a very formidable portfolio of sports. 

Johnson: Yeah, exactly. Warner Bros. Discovery, they've pivoted since they lost the NBA rights last year and built this extensive lineup of sports rights. They currently hold a package of rights paying over a combined $750 million annually for MLB and the NHL, expiring in 2027, I believe, for that one. And then they also hold a package of races for NASCAR with their media deals kicking off this year, expiring in 2031. They obviously hold rights to the NCAA March Madness, the French Open this year, which was deemed a successful event. And then they also have a three-year deal with Unrivaled getting into women's basketball, and then a variety of deals in college sports as well with Big East basketball and select college football playoff games through their sublicensing agreement with ESPN. 

Reynolds: Okay. Pretty impressive list. Alright, let's go back to the broadcast buying beat if we can. Justin, there's a lot of sports involved here too with Nexstar and TEGNA. 

Nielson: There definitely is. And TEGNA has been really aggressive in terms of the local rights deal. They have local rights with 14 NBA, NHL, MLB, and WNBA teams across the 87 local TV markets, including the Dallas Mavericks, Indiana Fever, and others. And then you look at Nexstar. Nexstar has done a lot through The CW network with sports. You've got NASCAR events, you've got college football with ACC and PAC 12 games, and you've got other fringe sports like professional bull riding and others. So it would be a nice pairing of the two, to be honest. You have some of those major professional sports, and then you maybe have some of those secondary sports on a national network level. 

Reynolds: Scott, Justin just outlined when Nexstar is really lifting The CW, in which it owns 75%, with a handful of live sports. What do you make of their strategy, and is it one that can survive longer term here? 

Robson: Yeah, I think so. For years, the CW was heavily invested in scripted dramas mostly aimed at a younger demographic. Getting into the sports business with the launch of CW Sports in early 2023 seemed a no-brainer. They started off with live golf and have been slowly but surely acquiring some rights as they grow here. I think that it makes sense given sports popularity on linear and just the declining viewership for the other programming. So while the CW hasn't really been a major player in this space, I think that the select properties they've acquired make sense. 

Reynolds: Okay. Alright, Mike. If we look at Sinclair, if they were to succeed in buying Scripps, they would be back in the sports game in a big way. They used to, through their Diamond Sports subsidiary, be the lead operator in terms of regional sports networks. They have the Tennis Channel now and they've done some other local deals. Can you talk about what a Sinclair-Scripps sports portfolio would look like? 

Johnson: Yeah, so sports would be basically a core element with any pact with Scripps. Like you mentioned, Sinclair owns the Tennis Channel, local rights to the Portland Trail Blazers, RIP City TV. You have the WNBA Seattle Storm, to name a few of those. Then you have the Scripps sports portfolio as well, which includes rights to the NWSL, which is growing exponentially recently. You have the Big Sky Conference, and then you also have local rights to a handful of pro teams, including the two-time defending Stanley Cup Champion Florida Panthers, the Vegas Golden Knights, Utah Mammoth, Tampa Bay Lightning, and then also the Las Vegas Aces from the WNBA. And then you also have the ION Network, which is owned by Scripps, and they've recently reached a multi-year extension with the WNBA itself. So yeah, a lot of sports going on if a pact were to happen here. 

Reynolds: Alright, Justin, you had alluded to the regulatory side before. With the two broadcast deals in play, the 39% national cap, duopoly, and all the rest of that, FCC Commissioner Brendan Carr seems to favor deregulation. Your take there: are these things going to happen? 

Nielson: Yeah, definitely from Brendan Carr and the Republican majority's perspective on the FCC, they're in favor of deregulatory moves in terms of the 39% cap and duopoly rules. From the broadcasters' perspective, the most vocal being Perry, so at Nexstar, is his data that these rules were based on a marketplace that's decades old and needs to be modernized. And especially now that they're competing directly with streaming companies and big tech companies. I think there's a lot of momentum behind the regulatory moves at the FCC for broadcast owners. It really is, do they need to be able to get the bill through Congress to make those changes, or can they do that at the FCC level? Those questions are still yet to be answered. 

Reynolds: So right on the streaming side, Seth, there aren't any regulations per se, I don't think. As you mentioned, 300 million global Netflix subscribers, Warner Bros. Discovery HBO Max primarily has 128 million. But that doesn't mean they're going to have 430 million subscribers. You've written that, again, there's quite a bit of overlap in terms of folks with different SVOD services. 

Shafer: Yeah, exactly. Especially for Netflix. So when we survey around that, and it varies market to market, but generally, from Netflix households, 50%, 60%, 70% of them sometimes have a subscription to these other services we're talking about, whether that's HBO Max or Paramount+ or other services, Peacock. So getting any of these deals through, I think it's less about regulations and more about which way political winds are blowing at the time. I think Netflix can argue pretty compellingly that as dominant as they are in subscription video, there's a whole world of free video content out there. You bring in YouTube, TikTok, Instagram, Facebook, all of the different ways that people can access video entertainment these days. On the streaming side, the rise of free services like Pluto TV and Tubi. It's difficult. The streaming side is more wide open; on the one hand, it's less cut and dried as far as regulations, but I think easier to get deals through because it's still a fragmented marketplace with a lot of popular services on it. 

Reynolds: Yeah, even with Netflix's vast array of originals... And if you were to add Warner Bros. Discovery into the mix, you had mentioned Harry Potter, there's Lord of the Rings, there's Dune. The library goes back to "Casablanca," "2001: A Space Odyssey." As great as all that content is, again, it's still a splintered world. 

Shafer: There are, and the competitors are hefty competitors as well. Netflix could say, "Look, we're competing against Amazon, Meta Platforms, Apple," these huge mega tech companies, as well as the traditional media heavyweights of Disney and an upsized Paramount Skydance and Comcast. It's a fairly long list of well-resourced, well-capitalized competitors that would be in the landscape too. 

Reynolds: Alright Scott, if Paramount Skydance were to succeed here and mix it together, I think you said over 60 networks, there's not going to be any regulation there though, right? No one's going to say you can't have that many cable networks. 

Robson: Yeah. Look, if this type of merger were to be proposed 20 years ago, I think it would be a pretty big deal and likely face major regulatory scrutiny. I don't think regulators are going to be up in arms with the prospect of TBS and Comedy Central coming under the same umbrella. 

Reynolds: Okay. 

Robson: But that being said, I'm sure that some major pay TV operators are going to have some pushback on a company with 60 cable networks using its leverage to negotiate higher rates. No doubt. I think the key issue here is going to be with CNN and CBS News coming together as far as the government being hesitant to let this go through. And I think that the same can be said for a potential Comcast/Warner Bros. Discovery deal with MSNBC and CNN. 

Reynolds: Alright guys, we're getting toward the end here a little bit. I just wanted to say what happens if none of these deals go through? Warner Bros. Discovery, David Zaslav, he's the CEO. He's been on the record for a while now. They have 128 million subs in the DTC world. They're going to get to 150 million, they say. Seth, are they good to go as a standalone? 

Shafer: Yeah, I think obviously aside from the top line numbers you mentioned, they've been consistently profitable in streaming for several quarters now, and I forget exactly what they're on pace for, but over, I think, $1 billion in EBITDA next year on the streaming side. They built a profitable business and they're filling in the map internationally and rolling out into additional international markets. So from a standalone basis, it's still a good business. I think it's difficult because these deals acquire their own momentum about, "Oh, something must happen." I guess I feel like a deal is likely, but to your point, your actual question obviously, I think it's still a viable profitable standalone business if they just stand pat. 

Reynolds: Alright, Mike, on the other side, if the cable networks get split off the global networks business again, you'd mentioned many of the properties that TNT Sports has. The question is, without the connection to Warner Bros. per se, do they get a renewal with MLB after the 28 season? I think you mentioned the hockey's up after 27. Does that work for them? Can they be a strong sports entity as their own group? 

Johnson: Yeah, it's interesting that TNT Sports will reportedly prepare to launch its own type of streaming service following any sort of separation from Warner Bros. Discovery, if we get to that point. And with that, they would have the flexibility to build their own streaming sports presence independently. That kind of means that they can explore partnerships with other entities, whether that be with Warner Bros. Discovery itself or potentially even ESPN or Fox, which they've sure worked with previously. While they'll retain the rights to MLB and NHL for the next couple of years, the restructuring could allow them to pursue a more agile rights strategy going forward. 

Reynolds: Alright, prediction time guys. Justin, Nexstar. Does it get done? What about Sinclair and Scripps? 

Nielson: In regards to Nexstar and TEGNA, I do feel it's going to get to completion. It could be 12 to 18 months just based on how it happens in terms of the regulatory approval and if they have to get exemptions for some of these duopoly or the broadcast regulations to get changed before that time. Sinclair and Scripps? Not so sure. There is momentum from Sinclair's standpoint. Scripps is still digesting the bid. They are supposed to give a response back at the end of this week. And then they also have a pending deal with Scripps and Gray with some of the station swaps and surf markets. So what happens there? What will be interesting is does Gray come in and give their own bid for the group of stations? 

Reynolds: Yeah, I gotcha. 

Reynolds: Okay. Alright. Seth, who's the Warner Bros. Discovery winner? If anybody. 

Shafer: Putting this right on the spot here, Mike. I like it. My best guess, and this is on how much Netflix is willing to pay, but I would imagine that a generous Netflix bid might get the nod of approval from the Warner Bros. Discovery board, only in that it would be a cleaner path to approval. I think so. I'm cautiously hedging, putting my bet on Netflix. 

Reynolds: There. 

Reynolds: Okay. Alright. Mike, you want to take a stab here? 

Johnson: Yeah. Obviously, a lot of details left to be sorted out, but I'm going to go with Paramount to win the full Warner Bros. Discovery bid and offer up that extensive sports portfolio that we've been talking about here. 

Reynolds: Alright. Scott, last word to you here. 

Robson: Yeah, I'm in agreement with Mike here. I think Ellison opens up the checkbook and gets things done between Paramount Skydance and Warner Bros. Discovery. 

Reynolds: Alright. That concludes this episode of Media Talk. I just wanted to thank our Kagan analysts for weighing in on major M&A prospects and a little bit of handicapping. This is Mike Reynolds. Thanks to all of you for listening. We'll catch up soon in the next episode of Media Talk. Goodbye, everybody.