Private Equity’s Inevitable Impact on Media and Entertainment

Private capital has always been interested in Entertainment. Most recently, the “Money” has become more professional, more private and more stealthy. And there is much more money out there than ever before.

Not all money is the same. The list of differences between types of capital is considerable. Debt capital is distinct from equity capital, and capital destined for public equities could not be more different than investing into private equity.

In general terms, public equity markets serve to preserve wealth over the long-term. Private equity, on the other hand, is where wealth is initially generated. The fundamental basis for private equity investing is to benefit financially from value creation inherent in entrepreneurial companies that can demonstrate commercial advantages over the competition. Quite often, that competition is led by older, publicly-traded companies with established commercial practices that are difficult to change. Entrepreneurial companies disrupt the status quo that established, publicly-traded companies thrive on.

Few other industries offer a greater opportunity to profit from disruption than today’s Media & Entertainment industry.

No other type of capital is as adept at investing in opportunity as private equity.


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According to McKinsey’s annual Global Private Markets Review 2024, the “dry power” private equity firms have to spend on new investments into private companies grew by nearly 20% a year since 2018 and stood at US$3.7 trillion as of June 2023.

A portion of that is investment capital from wealthy individuals and families, which account for an increasing percentage of the US$13.1 trillion in private markets assets under management. Those wealthy individuals and investors, however, have considerably more capital on hand. The global wealth controlled privately by individuals and families as estimated by the Swiss bank, UBS is US$454.4 trillion, which is actually down this year (2.4% year-on-year) for the first time since 2008.

To put this in perspective, the total market capitalisation of every publicly-traded company in the world is estimated by the World Federation of Exchanges at US$107 trillion at the end of Q3 2023. This represents only 19.6% of the capital controlled by private individuals and families around the world.

Disruption

It has taken twenty years for the largest, publicly-traded Media Majors to recover from a demonstration in disruption by Netflix and Amazon, two Silicon Valley tech companies initially supported by private equity. To many observers, they really haven’t recovered. Both are now publicly-traded companies and Netflix clearly continues to lead the sector in terms of motto fulfilment (its motto being, “Entertain the World”).

The disruption at the heart of the resulting “Streaming Wars” struck at a near monopoly in content distribution held by the Media Majors. This near monopoly had been developed during a century of control over two key aspects of the industry:  which pieces of entertainment content consumer audiences experience and how they experience it.

While those Media Majors have focused on that original disruption by emulating Netflix as best they can, both the consumer audiences they serve and technology itself have changed dramatically. These changes include the wholesale spread of streaming technology in the form of software code that places digital distribution in the hands of nearly anyone with a computer and internet connection. As technology has advanced, so too have consumer audiences, both in terms of population and in demographic behaviour.

That behaviour embraces the digital nature of modern societies in a way that that legacy Media Majors simply do not understand and are failing to profit from.


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The result has been downward pressure on the share price of most of those Media Majors’ publicly-traded stock since the end of the pandemic. The near monopoly over distribution and delivery of content to audiences has provided the Media Majors with a relatively reliable portion of the US$2.5 trillion in annual revenues to the M&E industry last year. The franchise value in brand recognition for institutional investors with long-term positions offers considerable buoyancy as well.

That near monopoly, however, is now under threat once again from tech-enabled media entrepreneurs with a determination to deliver entertainment content directly to consumer audiences.

In Private Hands

One of the most prominent media entrepreneurs over the past several decades is also one of the most tenacious Hollywood insiders around. Ari Emanuel, CEO of Endeavor Group, has spent the past twenty years aggressively building a media business that does what the Media Majors don’t: deliver audiences what they want and how they want it.

Bypassing the control that Studio bosses exercise over production of content in Hollywood, Emanuel’s Endeavor Group (Nasdaq: EDR) has focused on sport, something the Media Majors have only recently embraced as entertainment. With the help of one of the world’s largest tech-focused private equity firms, Silver Lake Technology Management, Endeavor acquired the parent companies of Ultimate Fighting Championship (UFC) and World Wrestling Entertainment (WWE) in successive deals each ranked as the largest in sports. Those acquisitions tap into something the Media Majors do not have: direct connection between the creative voices essential in production of entertainment content and the consumer audience that product speaks to. In the case of UFC and WWE content, the combined audience is reported as a staggering 1.5 Billion fans globally.

Endeavor went public in April of 2021, simultaneously listing its sports properties as well under the name TKO Holdings (Nasdaq: TKO). Yet being a publicly traded company, something Emanuel had long aspired to for Endeavor, came with significant strings that divert alignment of interests away from the creative production side of the business.


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The company’s balance sheet assets are now worth more than the market value of its shares and the wealthiest international investors and legacy media majors are circling.


Now, in a deal valuing Endeavor at US$13 billion, Silver Lake is acquiring it all and taking Endeavor Group private again.

Seeking a similar move, two of the world’s other largest private equity firms, Apollo Global Management (Nasdaq: APO) and Blackstone, Inc. (Nadsaq: BX) are bidding to acquire British LSE-listed Hipgnosis Song Management (LSE: SONG) and take the company, which controls the rights to some of the world’s largest music catalogues, private.

The predominance of streaming in music distribution has allowed the sector to focus on Direct-to-Consumer channels and a more audience focused business model than Hollywood. This has allowed individual artists to take more control over their relationship with fans and leverage both technology and live performance to cash in.

In the case of Taylor Swift, who now owns and controls the rights to her music herself, this close relationship to fans has catapulted her personally onto Bloomberg’s list of Billionaires.

Last week, US-based Concord Chorus, which is backed by Apollo, formally offered to acquire all outstanding shares in Hipgnosis to value the company at £1.4 Billion. Blackstone then unofficially upped the bid over this past weekend. The Board of Hipgnosis is reported to be favouring Blackstone’s higher bid and will reportedly recommend it to shareholders, if Blackstone makes the offer official.

By taking publicly-listed companies such as Endeavor and Hipgnosis private, the executives in these companies can be provided with the freedom to more closely match content creatives with the audiences they serve. In doing so, the companies can focus on building intellectual property into long-term balance sheet assets rather than face the pressure to maximise short-term quarterly earnings.

The Rising Tide

Disney’s celebrated CEO, Bob Iger, managed to withstand a call for reforms from activist-shareholder Nelson Peltz in its AGM held on April 3, 2024. Peltz, an active critic of Iger, has long-cited a lack of strategic vision for taking Disney into the next-generation. The defeat of reform-minded Peltz was a victory for Iger and for the status quo that now drives strategy at the Media Majors.

That status quo is held firmly in place by pressure from public equity shareholders.

And while the influence of public capital weighs on the decisions-makers at the Media Majors, a growing flood of private capital is quietly tipping the scales in favour of media entrepreneurs and the consumer audiences they hold more closely to.


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That private capital is experiencing a generational shift closely matched by the audiences driving consumer spending on entertainment content. PwC’s annual industry outlook estimates consumer spending at over US$1 Trillion this year. That revenue stream is significant to both emerging media entrepreneurs and the Media Majors. As are revenues from advertisers who, according to PwC, are expected to increase ad-spend above the US$1 Trillion mark sometime in the next few years.

According to its Billionaire Ambitions Report 2023, UBS reveals that a material transfer of wealth to the younger generation is gaining momentum. According to UBS, heirs favour private equity, with 59% reporting an intention to increase direct private equity investments and 55% intent on investing more in private equity funds, such as Silver Lake and Apollo.

Privately-managed wealth can be said to have a more intimate finger on the pulse of the real economy than the public equities industry. This insight, together with capital, can have a much more dramatic effect on the economic impact from media entrepreneurs who develop greater efficiency, opportunity and consumer loyalty than publicly-traded legacy brands.

The allure for private equity in Media and Entertainment lies in the momentum behind digital transformation and enhanced content monetisation strategies that embrace consumer audiences directly. As consumer preferences pivot further towards digital engagement, savvy private equity investors are capitalising on these shifts, supporting companies at the cutting edge of media technology and content creation. This transformation transcends mere financial investment, fostering a culture ripe for innovation and adaptability.


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A notable example are recent upticks in both deal numbers and values within the Web3 sector, which more closely aligns the interests of creatives and audiences than traditional Media Majors can afford to do. According to data from Crunchbase News, Q1 venture dollars increased to nearly US$1.9 Billion over 346 deals, up 58% from Q4 2023.

Private equity’s evolving role extends beyond financial backing. Private equity investors often become integral participants influencing operational strategies and long-term business objectives. Their proactive involvement is often viewed as a catalyst for comprehensive organisational reform, compelling media entrepreneurs to swiftly adapt to emergent technologies and consumer trends.

Technology and AI: Pioneering New Frontiers in Media

There can be no sincere discussion of private equity involvement in Media & Entertainment without mentioning artificial intelligence.

AI is not merely a generative tool for content creation. It offers a multiplying force to administrative and operational efficiency. For media entrepreneurs, artificial intelligence may prove pivotal in refining user engagement and customizing content to enhance consumer experiences. This strategic adoption responds to the burgeoning demand for personalised media consumption, setting new standards in content delivery and audience engagement.


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AI’s capabilities also enable smaller media companies to embrace predictive analytics, which aids production companies in making data-driven decisions about content development and consumer trends, thereby finely tuning outputs to match audience preferences. Such technological prowess is invaluable in a sector where audience tastes are rapidly evolving and financial stakes are continuously escalating.

Moreover, automating routine tasks such as fan engagement and monitoring allows emerging media companies to focus more on innovation and strategic growth, maintaining their edge in a fiercely competitive market.

It is precisely this convergence of technology, younger generations and growth in private capital that offers opportunity for innovation by media entrepreneurs to forge the next great disruption in Media & Entertainment. It will be private equity investors that enable it.

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