Sep 19, 2023 - Economy

Hollywood giants slim down

Data: Yahoo Finance; Chart: Axios Visuals
Data: Yahoo Finance; Chart: Axios Visuals

Entertainment firms once eager to scale are starting to slim down, shedding assets that are no longer deemed core to their business.

Why it matters: A new wave of consolidation within the media industry is expected next year, but publicly traded media firms need to convince Wall Street, and potential deal partners, that their businesses are strategically moving in the right direction if they want to make bigger moves.

Driving the news: Disney has held talks to sell its broadcast network, ABC, along with its local affiliates to local broadcaster Nexstar, Bloomberg reported and Axios has confirmed.

  • Byron Allen, the media entrepreneur who currently owns The Weather Channel, has made a $10 billion offer to Disney for an asset package that includes ABC, its affiliates and other linear networks owned by Disney, his spokesperson confirmed to Axios, following a Bloomberg report.
  • Disney said it hasn't made any decisions yet regarding the divestiture of ABC but that it's "considering a variety of strategic options for our linear businesses."
  • CEO Bob Iger said in July the company was considering selling off its linear assets as it looks to prioritize parks, streaming and movies.

Paramount has also been shedding assets, including real estate, in an effort to prioritize streaming.

  • The firm sold its book publishing business Simon & Schuster to KKR for $1.62 billion in August.
  • It was looking to sell a majority stake in BET Group — which includes BET, BET Studios, BET+ and VH1 — but canceled its sale plans after determining that it "wouldn't result in any meaningful deleveraging of its balance sheet," per the Wall Street Journal.
  • It's also been trying to sell a majority stake in Noggin, its learning-focused streaming service for preschoolers, since April.

Warner Bros. Discovery has been pushing aggressively to pay down debt accrued from its 2022 merger with content write-downs, a partial music catalog sale and other cost-saving measures.

  • The firm is expected to possibly explore a bigger combination when the tax provision used to merge WarnerMedia and Discovery expires next year.

NBCUniversal, which was acquired by Comcast in 2011, is considered a ripe deal partner for Warner Bros. Discovery, or another entertainment giant looking to scale.

  • The firm has been shutting down smaller cable networks as it orients its focus further around streaming.

Flashback: Fox Corp. was the first entertainment giant in the modern era to slim down its portfolio in favor of focus.

  • Fox sold its entertainment assets to Disney in 2019 for $71 billion, allowing it to focus its efforts on live news and sports. (Disney is now trying to sell some of the linear television networks it acquired as a part of that deal.)
  • Unlike its peers, Fox is not trying to build a subscription streaming service to compete with the likes of Netflix.

Be smart: Media giants have struggled on the public markets this year, as Wall Street grows frustrated with the losses attributed to their streaming efforts.

  • Disney, Warner Bros. Discovery, NBCUniversal and Paramount don't expect their streaming divisions to break even until 2024 or 2025 at least.
  • Every major streaming service has increased its prices in the past year in an effort to get to profitability faster.

The bottom line: In order to get bigger in the future, media giants need to shed some assets now.

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