Hollywood’s Deal Dilemma for 2023: Go Big or Wait Out the Downturn?

This December, the general mood on Wall Street is that next year will not see an explosion of major transactions along the lines of the ones that created Warner Bros. Discovery (WBD), Paramount Global or Disney’s takeover of large parts of 21st Century Fox assets.

After all, companies like the David Zaslav-led WBD are still focused on making prior megadeals work, and others are waiting for what is perceived as a more favorable regulatory environment amid increased antitrust scrutiny. All entertainment companies are dealing with such challenges as accelerated cord-cutting and the advertising fallout of recession fears. Higher interest rates and decreased access to capital are also potential obstacles for M&A. Plus, sector stocks are depressed, making agreements on price tags particularly difficult. “Consolidation has been a theme in media due to the combination of rising content intensity in streaming and well-known declining linear trends,” Wells Fargo analyst Steven Cahall wrote in a Dec. 20 report. “In 2023, we don’t expect any major media deals.”

However, under pressure, some players could well look for transforming moves after all. “As we look to 2023, higher interest rates and inflation, coupled with growing geopolitical tensions and regulatory oversight, will require dealmakers to refine their portfolio strategies and be more intentional about deal value creation,” consulting giant PwC wrote in a late 2022 deals report. “The media and telecommunications sector may fare better than others, as it sits at the center of many sectors’ investment patterns and growth strategies.”

Below are the Hollywood firms that could see M&A interest in the new year — along with a few longer-shot possibilities for deals, like Disney, that could fundamentally alter the Hollywood studio landscape.

The studio has been increasingly viewed as an acquisition target, after ending its most popular series, The Walking Dead, in November, and forecasting company-wide layoffs and “cuts to every operating area” later that month. Executive Chairman James Dolan explained the cuts by saying that the company’s streaming ventures, which include AMC+, Acorn TV and Shudder, hadn’t been able to balance out the impact of cord-cutting losses at the company, which owns cable networks AMC, IFC and Sundance TV. AMC Networks has also said it will take $300 million to $400 million in write downs on content, coming from a mix of “owned and licensed content, which will no longer be in active rotation on the Company’s linear or digital platforms.”

All of this comes as CEO Christina Spade left the company at the end of November after taking the position in September. Dolan has stepped up as interim executive chairman as AMC searches for a successor. 

AMC Networks has been hoping the launch of its new series Interview With a Vampire, alongside spinoffs of The Walking Dead and other new programming such as Mayfair Witches, can help fill in the holes left from the departure of its biggest franchise, as well as the end of popular shows Killing Eve and Better Call Saul. But with advertising headwinds, alongside a rise in cord-cutting and smaller streaming services (which have been growing subscribers, but still pales in comparison to the giants), it may face an uphill battle. — Caitlin Huston

Among entertainment companies, Disney is the 800 lb gorilla (er, mouse?) in the room. Unlike all of its competitors with lineages that trace back to cinema’s golden age, Disney is the one studio that never sold itself. It acquired other business, certainly, with CEO Bob Iger the architect of some of its biggest deals (Pixar, Marvel, Lucasfilm), and a product of another (Capital Cities/ABC), but unlike Universal, NBC, Fox, ABC, CBS, Paramount Pictures, MGM (the list goes on…), Disney was always a buyer, not a seller. 

Could that era be over? Could this “increasingly complex period of industry transformation,” to use the words of Disney board chair Susan Arnold, necessitate a pivot? Could Iger’s time-limited return mean that he’s seeking a deal? 

As far-fetched as it may have seemed just a few short years ago, a Disney sale is suddenly not crazy, even if the list of potential buyers is short (Apple and … Apple?), but a Disney split: Sending the ABC TV network, ABC News and ESPN to another corporate home or their own new company, is far more plausible. The “precipice” facing traditional TV (those are Iger’s words, spoken at the Recode conference 3 months ago) is steep, and if Disney is focused on a streaming future, jettisoning its linear businesses may be the most rational thing to do.  

As for an outright sale? There is no entertainment company on earth with the intellectual property, reach, and brand devotion of Disney. Any company interested in the space, with deep enough pockets, would covet the company’s holdings, while its unmatched theme park business gives it real-world interactions with tens of thousands of people daily, all using cutting edge tech to bring those stories to life. 

As Steve Jobs famously said, it is “technology married with the liberal arts, married with the humanities, that yields the results that makes our hearts sing.” When you look at it that way, the biggest technology company acquiring the biggest company in the humanities makes a whole lot of sense. — Alex Weprin

After less than three years at Hasbro, the toy giant is looking to to unload the film and TV production and distribution unit. J.P. Morgan and Centerview Partners are leading the auction for eOne, which has a film and TV library with around 6,500 titles and a branded film and scripted TV business that produces and finances content like Dungeons & Dragons: Honor Among Thieves, The Woman King, Yellowjackets and The Rookie franchise. In mid-November, Hasbro first announced it was exploring a possible sale of eOne. Any possible sale of eOne will see Hasbro retain Peppa Pig and other key properties acquired when the toy maker acquired the Toronto-based indie studio in 2019 as part of a $4 billion all-cash transaction. Hasbro shedding eOne, should a deal be completed, aims to allow the company to focus on branded assets like Peppa Pig, Transformers and Dungeons & Dragons as it looks to be become a digital games giant. Any move to sell part or all of eOne to reinvest in fewer, more profitable properties, and to do so with outside partners to reduce costs and risk, has been applauded by Wall Street investors. — Etan Vlessing

What is the future of entertainment? It may or may not involve the “metaverse,” but one way or another it is likely to be interactive. Video games are already a gigantic business, and if traditional entertainment companies want to compete in the future, games are likely to be a part of it. 

Already Netflix is developing games and interactive content, and many traditional studios have dabbled in the space. But with antitrust scrutiny likely to make deals to buy other streamers or networks tough, why not go big and outside the box, and target one of the industry’s biggest players? 

Electronic Arts controls the strongest brand in sports gaming, EA Sports, including the Madden NFL franchise. It produces the Battlefield, Need for Speed and The Sims franchises (all ripe for reimagining as films or TV shows), and it inked a deal with Disney to develop games based on that company’s IP, notably the Star Wars franchise. 

Speaking of Disney, if Iger wants to pull off one last mega-deal, EA could certainly fit the bill, giving the company instant scale and credibility in gaming, an area Disney has never succeeded in. 

It was a move contemplated by another deal-hungry conglomerate earlier this year: Comcast, which weighed merging EA with NBCUniversal, until deal talks fell apart over valuation. 

With Activision Blizzard off the market (at least until the Microsoft deal is decided one way or another), Epic Games effectively a founder-controlled company, and Nintendo a difficult takeover target for an American company given Japanese regulatory rules, EA is probably the ripest takeover target in the gaming space. The question now is, who’s in the game? — Alex Weprin

The past year and a half saw private equity firms nabbing stakes in A24, Legendary Pictures, LeBron James and Maverick Carter’s SpringHill and Kevin Hart’s Hartbeat banner, while asset manager Blackstone rolled up stakes in Reese Witherspoon’s banner Hello Sunshine and Will and Jada Pinkett-Smith’s Westbrook Media and Brad Pitt’s Plan B sold a majority share to French conglomerate Mediawan. Ron Howard and Brian Grazer’s Imagine Entertainment could be among the next major indie Hollywood firms generating interest.

The firm, founded in 1986 after Grazer and Howard collaborated on Night Shift and Splash, went on to forge a 30-year relationship with NBCUniversal’s Universal, a partnership that included such acclaimed features as A Beautiful Mind, Apollo 13, American Gangster and Frost/Nixon and blockbusters like Liar, Liar and The Da Vinci Code. In 2016, as the Universal deal ended, Imagine secured a $100 million-plus investment from merchant bank The Raine Group, with an eye toward emerging media, including branded content. A year later, Imagine launched a television joint venture with a subsidiary of Hong Kong-based TVB, with TVB Venture investing $100 million to co-finance projects.

In film, the company partnered with digital studio Animal Logic in 2018 to develop and finance a series of animated and hybrid animation/live-action features, including Paramount’s The Shrinking of Treehorn, which has a Nov. 2023 release date. Imagine bought Jax Media, the producer of Emily in Paris (Netflix) and Full Frontal With Samantha Bee (TBS), and it made a further investment in nonfiction, buying a significant stake in 2020 in Alex Gibney’s Jigsaw Productions, the banner behind titles like Theranos doc The Inventor: Out for Blood in Silicon Valley (HBO). In 2021, Imagine struck a multi-year, first-look deal with Apple to develop a slate of scripted feature films. Other recent deals have included a bet on podcasting with a division, Imagine Audio, that inked an exclusive slate deal with iHeartMedia to launch six new series. — Erik Hayden.

Will a new wave of M&A in 2023 engulf Lionsgate? The studio has long coyly played buyer and seller, most recently as it considers a spin-off of Starz or an outright studio sale. But after purchasing a 20 percent stake in the Spyglass Media Group and around 200 film titles, Lionsgate is starting to look a lot like MGM as investors eye its giant library of franchises like John Wick, Hunger Games and Saw for a Big Tech player doing its own pivot to streaming and hungry for content. Not that Lionsgate minds having a takeover target on its back. “We’re obviously one of the last remaining, very large, independent companies, and there’s great scarcity value out there,” Lionsgate vice-chairman Michael Burns told an investors conference in Sept. 2021. During an earlier consolidation wave in 2017, Hasbro eyed the Vancouver- and Santa Monica-based studio as prey, before acquiring Entertainment One, a company it’s now selling. While giving no timing on a Starz or studio transaction as part of strategic alternative, Lionsgate is hoping growth for Starz’ streaming offering, especially internationally, TV series placed across all major networks and many more in development, and a movie slate that includes a Hunger Games prequel and the John Wick-spinoff Ballerina, will grease the wheels for possible M&A. Of course complicating Lionsgate’s dealmaking playbook is, whether its studio assets or Starz is ultimately spun-off, the studio wants to retain control as it looks to increase the value of its stock price and minimize its tax obligations. — Etan Vlessing

Paramount Global, smaller than its streaming rivals under CEO Bob Bakish, has long been considered a takeover target for bigger fish, a prospect only strengthened by Warren Buffett’s Berkshire Hathaway building its stake in the Hollywood studio in recent months. With top-flight steaming platforms like Paramount+ and Pluto TV and a market cap at $11.2 billion and a stock price in the $17 range, Paramount is seen as a ripe target for bigger streaming rivals like Apple, Comcast or Warner Bros. Discovery, or Big Tech players looking to enter the film, TV and digital media space. Controlled via its class A shares by National Amusements, the holding company run by Shari Redstone, the Top Gun: Maverick studio just isn’t seen as having the scale — it had 67 million global streaming subscribers as of its last earnings tally — to prevail in streaming wars against Netflix and Disney+ just as digital viewing options and content costs rise sharply into 2023. And while Paramount, formerly known as ViacomCBS, has CBS, that network is less of the cable TV juggernaut it once was amid cord-cutting and an advertising slowdown. Hence Paramount doubling down on streaming. — Etan Vlessing

The brash and youth-centric company that once had ambitions of replacing legacy news giants is now settling into middle age and looking for new financing. After a period of rapid growth in the 2010s — the company went from a $1.4 billion valuation in 2013, when 21st Century Fox paid $70 million for a 5 percent stake, to $5.7 billion four years later when private equity firm TPG led a funding round of $450 million — Vice Media has gone through rounds of cost-cutting and layoffs. Vice’s biggest swing may have been plans for a major linear TV undertaking with Viceland, a cable news brand that took the place of A+E Networks’ channel H2 and aimed at distribution in 70 million homes. But Viceland, contrary to the vision of replacing cable news stalwarts like CNN or MTV, never fully took hold as a linear TV channel. Founder Shane Smith stepped away from the CEO role in 2018, with A+E Networks’ Nancy Dubuc taking over the top job. In one of Dubuc’s first major moves, Vice Media acquired digital media lifestyle publisher Refinery29 in 2019 in a bid to scale up the company’s online readership. After exploring IPO plans via a special purpose acquisition company, or SPAC, during a frenzy of dealmaking, Vice eventually scuttled that effort. In September 2021, Vice announced that it raised $135 million from a round of investors including James Murdoch’s Lupa Systems, TPG and TCV, as well as Sixth Street and Antenna Group. Now the question may be: Will the company look to merge with another digital media company, try to sell itself to a legacy operator in full or look for more private equity financing to go it alone? — Erik Hayden

The studio behind cable’s biggest hit Yellowstone is an attractive target in an industry clamoring for successful IP in a saturated content market. 101 Studios, which was launched by former Weinstein Co. exec David Glasser in 2018 with $300 million in backing from investors including Ron Burkle, quickly made a splash with $28.5 million deal for the first and second seasons of Taylor Sheridan’s modern Western drama starring Kevin Costner. Now in its fifth season, Yellowstone continues to break viewership records with its dedicated following. And the new prequel, 1923 starring Harrison Ford and Helen Mirren, was the most-watched series premiere on cable this year, drawing 4.12 million viewers to Paramount Network. 101 also boasts several other starry projects — like the Jessica Chastain-Michael Shannon limited series George & Tammy, Jeremy Renner-led Mayor of Kingstown and Sylvester Stallone’s Tulsa King — and houses Sports Illustrated Studios. — Ashley Cullins