By Martin PeersGreetings!
Amid the cacophony of earnings results this week, you might have picked up the faint but unmistakable sound of a pendulum starting to swing in the entertainment industry. The long-popular idea that film and TV studios should be paired with the TV networks or streaming services that broadcast the studios’ output is suddenly getting rethought. First out the gate was Lions Gate Entertainment, which disclosed it was exploring a spinoff of its Starz unit which encompasses cable channels and streaming services. That would leave Lions Gate as a pure studio. The question now is whether other companies will follow.
Driving Lions Gate’s thinking is the fact that some recent deals have put higher valuations on stand-alone film and TV production companies than the market is giving companies that own both studios and TV networks. As if to prove the point, a Blackstone-backed firm confirmed on Thursday that it would buy kids’ programming maker Moonbug Entertainment for around $3 billion. That’s around 15 times next year’s projected earnings. Lions Gate, in contrast, is trading at around 10.5 times the same multiple. ViacomCBS, which owns the Paramount film and TV studio and various cable channels and streaming services, is even cheaper, at about eight times, according to S&P Global Market Intelligence. The prospect of Lions Gate spinning off Starz had a quick impact with investors: Its stock price jumped 22% today.
For sure, companies like ViacomCBS, NBCUniversal and Disney aren’t likely to rush to follow Lions Gate anytime soon. They’ve pinned their futures on transitioning from cable to streaming, and they’re using their studios as the factories to make programming for those streaming outlets. While they’re likely to unload their cable channels at some point, right now they need the cash those channels produce to fund their streaming expansions. That means we’re not likely to see much earnings growth out of these companies for a while, as the cable transition and the streaming wars play out. Their stocks will be dead money.
But longer term, you can imagine this situation changing. Not everyone can win the streaming contest and become a must-have service like Netflix. At some point it will make sense for one of the also-ran companies—which could include ViacomCBS, NBCUniversal or maybe even the soon-to-be-formed Discovery-WarnerMedia—to separate their valuable film studios from their not-so-valuable streaming and cable outlets. Breakups would allow a consolidation in streaming, while the emergence of more powerful independent studios would supply the streaming outlets. As the late Sumner Redstone used to say, content is king. It's a cliche, yes, but one that could take on greater meaning in the coming years.
McAfee’s Public Market Life Is About to End, Again
Life as a public company just doesn’t seem to suit McAfee, the cybersecurity software firm. Bloomberg reported Friday that McAfee was in talks to be acquired by buyout firms Advent International and Permira. Close watchers of the market might remember that McAfee went public barely a year ago, in what proved one of the less successful of last year’s initial public offerings.
McAfee stock traded below its IPO price of $20 for the first seven months of its public stint. Over the past few months it has fluctuated around $21 until today, when the report of the pending buyout—which The Wall Street Journal pegged at around $25 a share—sent the shares up 20%.
McAfee’s biggest shareholders include two private equity firms, TPG and Thoma Bravo, as well as Intel, a relic of the different hands McAfee has passed through over the last decade. Maybe the coming deal will work out better for all concerned.
Fueling the Creator Middle Class
The Creator Economy, much like the global economy, has a concentrated minority at the top. The session focused on topics including platform creator tools, content ownership, the rise of shoppable ecommerce and lessons learned from China in the creator space. Find out the latest thinking from Pinterest, The Unconventional Southern Belle and Accenture on the creator middle class here.
Next Week’s Earnings
We’re nearing the tail end of the tech earnings season, with stragglers including DoorDash, Coinbase and Affirm reporting next week.
Of particular interest, especially in the wake of Uber’s reporting this week, is DoorDash. Wall Street analysts are projecting 34% growth in DoorDash’s top line to $1.176 billion, according to S&P Global Market Intelligence. That’s a sharp comedown from the 83% increase reported in the second quarter and the much greater growth rates for the pandemic-fueled year. We’ll also be watching for updates on DoorDash’s plans to expand its grocery-delivery business.
In Other News…
- Peloton froze hiring today, CNBC reported, the day after the company slashed its fiscal 2022 revenue projection. Peloton shares closed down 35%, taking it back to where the stock was in June of 2020.
- Meta Platforms, formerly Facebook, has reportedly explored the idea of opening physical retail stores to showcase its augmented and virtual reality products as the company moves forward with its plans to establish a digital metaverse, according to The New York Times.
- Bike rental firm Lime completed a $523 million financing, TechCrunch reported, noting that CEO Wayne Ting said this was the next step toward the company going public next year.
- Amazon asked regulators for permission to launch 4,500 more satellites to bolster its “constellation” for its Kuiper satellite internet service, Bloomberg reported.
