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Media C-Suite Week No. 2, Issue 40

A Week in the Media C-Suite, Week 2, Issue 40

A Week in the Media C-Suite 

It’s Sunday, the 7th of January, 2024.

The business of Media & Entertainment, particularly in the United States, seems to have taken an extended holiday with many in Hollywood kicking off the first real work beginning this week. If the last few years is any indication, delivering news, sports and entertainment to a planet of over 8 billion people is work well worth doing.

PWC’s annual financial survey of the Media & Entertainment industry estimates that, globally, more than US$2.5 trillion was generated in revenues by the industry in 2023.

US$2.5 trillion is a lot of money. It’s more money than was earned by the top 100 arms manufacturers combined last year.

It is for this reason that the senior executives at media conglomerates are some of the highest paid executives in the world. The CEO of Disney, Bob Iger holds a contract until the end of 2026 worth US$27 million a year. Comcast’s CEO, Brian Roberts took home over US$32 million in 2022, while his CFO, Michael Cavanagh pocketed total compensation of over US$40 million.

Despite an actors’ strike consuming much of 2023’s Hollywood production schedule, actor Margot Robbie is reported to have taken home over US$50 million for the year, with US$12 million from Greta Gerwig’s breakout hit, Barbie. Leonardo di Caprio is reported to have earned US$30 million from Martin Scorsese’s Killers of the Flower Moon.

And let’s not forget some of the deals in the past few years in which producers of high-value content have sold their companies to some of the largest Private Equity firms on the planet. Actor/Producer Reese Witherspoon sold a controlling stake in her company, Hello Sunshine, to Blackstone in a deal valuing her company at over US$900 million.

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Bob Dylan and Bruce Springsteen each sold their music catalogues to private equity for US$500 million apiece in 2022, while Genesis and Sting recently sold theirs for US$300 million each.

During 2022, the Rolling Stones toured for an impressive US$98 million.  Meanwhile, Forbes reported that, in 2023, Tailor Swift joined the billionaire’s club with a net worth of over US$1.1 billion.

It pays to do well in the Media & Entertainment industry.

So, what do these stars do with all that money?

Wealth Management

There is an urban myth that winners of multi-million dollar lotteries often go broke within a few years. But one thing that new money from Media & Entertainment tends to buy first is advice. Assuming that the first piece of advice is to avoid investment in your brother-in-law’s new crypto business, new money today is positioned well to avoid bankruptcy.

Taking revenues from entertainment, managing that money into businesses that secure and increase revenues and then structuring the money into assets is how one transforms money into wealth to last entire families for generations.

The conventional approach is to turn most of one’s wealth over to professional wealth managers, such as the largest banks and passively preserve one’s capital. Today’s generation of wealthy from Media & Entertainment tend to be anything but conventional.  They are certainly not passive. For stars, reinvesting in themselves is the first order of business. Transitioning from talent to management is often step one. Investing in other talent, other production assets and then across segments of the global Media & Entertainment industry itself tend to follow.

This is active management of wealth into businesses that the principals understand. Asset management structures are developed. Professional advisers become full-time team members. Before long, an actor, singer or film producer is running a type of organisation that has the potential to not only profit from Media & Entertainment, but to change the industry entirely.

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These types of organisations are not new. Proactively managed by experienced principals to invest in what they know, private family offices are a growing force economically. Many stand toe to toe with some of the largest Private Equity firms and Sovereign Wealth Funds on deals that are shaping our industry.

The Media & Entertainment private family office has arrived.

Our Take

Private family offices invest in what they know. With an increasing population of new wealth generated from Media & Entertainment, private family offices are poised to accelerate capital investment into emerging companies that challenge the predominance of publicly-listed media conglomerates.

Investing in smaller companies with a high probability of growth requires a lot of work. Such companies are not as easy to find as one might think. The competition for such companies can be fierce, with large Private Equity firms spending millions on networks designed to discover emerging opportunities. This process is called Deal Flow.

What most Private Equity firms have discovered is that the Media & Entertainment industry is particularly difficult to penetrate, and even more difficult to truly understand. The most active investors watch were private family offices invest their money. Smaller capital injections and guidance from a private family office that is in the Know can position emerging companies for stellar growth. Private Equity firms can then accelerate that growth with much larger capital injections in later investor rounds.

By observing, or partnering with wealthy professionals that are in the Know (as we at the Media C-Suite like to say), Private Equity firms position themselves for profit. This strategy is demonstrated by former NBC CEO, Jeff Shell partnering with RedBird Capital Partners. RedBird’s principal, former Goldman banker Gerry Cardinale has benefited greatly from Media & Entertainment investments based on insider knowledge, including deals with Skydance Media, the YES Network and Artists Equity.

Another former NBC boss has taken the CEO position at RedBird IMI, a joint venture between Cardinale and the sovereign wealth of Abu Dhabi’s International Media Investments.

These large, corporate investors are closely following the deals being pursued by private family offices. Such deals include increasing capital flows into technologies that directly benefit content creation, production and distribution for growing global audiences. Sports is another area of intense interest. As is gaming.

For example, international footballer Cristiano Ronaldo’s private family office has become an investor in Strykers, Inc., the video game publisher of UFL, an increasingly popular online football league simulation. Ronaldo’s investment joins a US$40 million funding round for the company that is now on every tech and Private Equity firm’s deal flow radar.

For media entrepreneurs and media investors alike, tapping into the deal flow of private family offices is the key to value creation within Media & Entertainment.

The executive power word for this coming week: Deal Flow.

Just Catching Up?

We’ll help you get up to speed.

Follow the Money

The impressive US$2.5 trillion in 2023 revenues to Media & Entertainment were made up of three primary streams:  consumer spending on access to content, advertising spend on access to audiences and spending on content production.

All three revenue streams are watched closely by professional investors eager to find trends within a large, lucrative industry in the midst of transition. The key question is:  Do I invest in expensive but well-established businesses or bet on smaller, earlier-stage companies pushing for change?

Consumer spending is an interesting target of analysis for professional investors. Gaming continues to surpass box office receipts, with live performance and sports rapidly gaining ground. Spending on streaming services is stagnant at best and in decline across some major markets. Major studios and streaming services are well aware of the trend and are working hard to incorporate more live performance and sport into content strategies that will continue rolling out this year.

Despite complaints from North American media outlets, global advertising revenues are approaching the US$1 trillion mark for the first time. Where that ad-spend is going, and who it’s targeting is also a key point of interest for professional investors.

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Conventional thinking will buy into the large media conglomerates’ argument that advertisers will spend with them. However, a new generation of ad agencies are convincing brands that smaller outlets with growing audiences offer more bang for the ad-buck, with opportunities for sponsorship and closer connection to consumers than big media and streaming services can offer.

Content production is also becoming a more serious target for professional investors. With more than US$250 billion in production spend last year, the opportunities are tangible. While IP remains the predominant balance sheet asset, production services and talent management companies are on the rise.

What It Means

An industry in transition and an established elite vulnerable to disruption offers substantial opportunity for value creation by media entrepreneurs and media investors.  A focus on where revenues are being generating, how they are changing and which businesses are best poised for advantage is the key to unlocking investment capital.

Looking Forward?      

Preparation is the Key.

Here are a few articles to get you moving in the right direction.

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