Entertainment Grows as Private Equity Pours Money into Disruption

private equity into the big top updated media c-suite

Private Equity investors are fast becoming the number one source of capital for a US$2.4 trillion industry struggling to cope with unstoppable growth.

Nearly 150 years ago, American entrepreneur P.T. Barnum, notorious for his ability to pull cash out of a crowd, proudly explained that he simply charged for the opportunity to entertain the masses. He explained this to London audiences queuing up to pay the man for lectures on how to invest their money. 

P.T. Barnum later developed The Greatest Show on Earth and toured the Barnum & Baily Circus across the US and Europe. The more people he could reach, the more money he made. He was limited only by the number of chairs he could fill his “big top” tents with. 

When it came to charging money for entertainment, sometime during the late 1870s, P.T. Barnum stated simply, “There is an ass for every seat in the house.”

How right he was. 

Today, the Media & Entertainment industry (M&E) enjoys over US$2.4 trillion in annual revenues. The “big top” is now limited only to broadband internet penetration and the size of the human population. Luckily, both of these numbers are routinely monitored. 

The United Nations announced that our species has now surpassed a population of 8 billion people. See an interesting article on Axios published November 14th, 2022. 

According to data published by Statista, 63% of the planet’s human population are active users of the internet. That’s a potential market of 5.03 billion consumers with an inherent desire to be entertained.

number of internet user and social media user worldwide 2022 media c-suite

If the M&E Industry were a nation, unto itself, it would be the 8th largest economy in the world. But M&E is no democracy. It is a feudal state notoriously restricted to Insiders. Money is always welcome, and actively pursued, so long as “The Money” stays on its side of the curtain. 

me 8th largest economy media c-suite media c suite
Largest economies in the world by GDP (nominal). Source: International Monetary Fund (IMF) estimates for 2022.

No other industry in the world is as adept as spending “Other People’s Money” and keeping it to themselves. But wherever tight fists are focused on clutching at lucrative revenues, there are investors seeking to profit from disruption. 

No other industry in the world is as ripe for disruption as M&E.

Netflix proved this to the bewildered surprise of studio chiefs at each of the aged, multi-billion dollar publicly listed media conglomerates that dominate the industry’s distribution of entertainment content globally. These Media Majors once ignored internet distribution as they reaped profits from expanding cable and satellite networks, broadcast television and, of course, the Box Office. 

Now the Streaming Wars are all consuming. 

Since Netflix began its international expansion in 2010, from the US to Canada, it has demonstrated the consequences, and costs, of not seeing it coming. Global audiences can now subscribe to Netflix in over 190 countries. None of the powerhouse offspring of the Media Majors, such as Disney+, Hulu or HBO Max have achieved that planet-wide reach despite near complete re-engineering of their corporate and commercial structures supporting any effort to turn themselves into “Netflix Killers”.

Now, those same aged, multi-billion dollar publicly listed media conglomerates are in financial and organisational turmoil while Netflix remains the bell weather in global video on demand.

But while all of the Media Majors are concentrated on the Streaming Wars, including publicly listed Netflix, another set of eyes are searching for what comes next. 

Those eyes do not belong to the aged, multi-billion dollar publicly listed media conglomerates. 

The Private Equity (“PE”) industry is “The Money” on steroids with a growing attraction to the opportunities emerging for capital gains within the Media & Entertainment industry. 

McKinsey’s annual review of the private capital markets, including Private Equity and Venture Capital, made interesting reading this year.

The PE industry has amassed a staggering investment war chest with over US$11.5 trillion in assets under management. This is nearly 3X the total market capitalisation of all publicly listed companies combined. It is able to leverage these assets for further acquisitions as it continues to raise ever greater capital from investors each year.

pe nav vs listed market cap media c-suite
Image credit: McKinsey.

According to PwC’s mid-year review of private equity deals, deal activity within M&E continues to rise with a record US$469 billion in announced deal value spread over 1,014 deals during 12 months to the end of June 2022, 28% year-on-year increase. Direct PE investment accounted for 42% of those with US$194 billion with PE supporting much of the remaining corporate deals within M&E.

Comprised exclusively of professional investors, the price for Private Equity’s money is for media executives to raise the curtain. 

But what, and who, is Private Equity? 

In the coming weeks, the Media C-Suite will provide insight into the many investment theses behind Private Equity’s moves into the Media & Entertainment industry. We’ll explore the implications of deals making headlines and discuss the behind-the-scenes machinations and motivations behind private ownership of global entertainment.

For the Private Equity professionals in our community, we will explore the opportunities being exploited by emerging media companies, and creators, around the world challenging the production, distribution and delivery models for entertainment content across the industry.  

Join us as we explore, and discuss, the expanding convergence between Private Equity investors and the Media & Entertainment industry.

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