Media Deal Activity Is “Constrained” Due to Presidential Election: PwC

Deal activity in the media and telecommunications sector in the first four months of 2024 remained “constrained by the prolonged impact of higher interest rates and uncertain regulatory dynamics,” top accounting and consulting services firm PricewaterhouseCoopers said in a Thursday report.

Announced deal values for the period January-April “rebounded slightly” from the comparative period in 2023 to $35.0 billion from $33.8 billion, up 4 percent. However, deal volumes “experienced a further decline” to 615, compared with 1,089 for the full second quarter of 2023, the company said in its latest M&A report.

One stat it highlighted is the fact that 39 percent of the disclosed deal value in the media and telecom sector since the second quarter of 2023 was driven by two megadeals: the $27 billion stock merger between Dish Network and EchoStar Corp. and Silver Lake’s take‑private deal for Endeavor, which valued the company at $13 billion with an enterprise value of $25 billion.

Despite the broader dealmaking downturn, “the sector continues to attract interest as market players continue to evaluate ways to refine their strategies and infrastructure to meet evolving consumer demands,” PwC argued, pointing to a return of private equity buyers as one factor that could come into play in the near future. “After being sidelined by higher borrowing costs, private equity investors are eager to get back into the game and have shown a renewed interest executing megadeals in the sector,” the firm explained.

PwC also pointed to the likes of TikTok, generative AI, the emergence of streaming bundles, and other factors affecting media, entertainment, and telecom firms and possible dealmaking.

“Short-form user-generated content platforms have continued to eat into traditional viewing habits, with platforms like TikTok leading the way,” the PwC report highlighted. “Streaming platforms will continue to evolve their suite of content, leveraging bundled offerings, joint ventures, and partnerships to share rising content costs while both promoting subscriber stickiness and curating larger audiences to drive advertising revenue.”

Meanwhile, AI technologies are “playing a larger role in content creation, resulting in more efficient production processes and new creative possibilities,” the consulting firm noted. And it predicted: “Content creators will increasingly tailor their offerings to individual preferences by utilizing AI and data analytics.”

And generative AI is “starting to dramatically impact the ad tech market,” PwC emphasized. “It’s significantly reducing the cost and time required to bring new ad campaigns to market.”

What about potential dealmaking in the streaming sector? “Players in the streaming space are exploring
new avenues ranging from consolidation and bunding to new offerings, including video games and live sports, to entice consumers to stay within their ecosystem,” PwC wrote. “In a period of inflation, consumers have the upper hand, and we expect they will continue to be drawn to platforms they perceive as providing the best value. To support average revenue per user (ARPU) and limit customer churn, streaming platforms will need to maintain a focus on providing subscribers a compelling value proposition.” At the same time, PwC said, “we expect regulators and technology platform changes will continue to present obstacles to deal execution in the sector.”

Looking ahead, the consultancy doesn’t expect much to change over the near-term. “With the upcoming presidential election looming in the background, we expect potential dealmakers will remain cautious and postpone their evaluations of more transformative transactions until there is less uncertainty around regulations and what the future will hold,” PwC concluded. “In the meantime, we expect buyers will remain vigilant of shifting consumer behaviors, so they’re poised to act when the M&A market eventually turns.”

Bart Spiegel, global entertainment & media deals leader at PwC, also sees streaming trends lending themselves to more dealmaking. “Despite these challenges, we still anticipate consolidation in the streaming ecosystem for a few reasons,” he told THR. “The number of platforms far exceeds the average household’s appetite, which is estimated at three to five subscriptions. In the current economic climate, consumers are seeking value, and compelling content or IP fosters platform loyalty.”

Plus, “leveraging economies of scale should lead to increased profitability,” Spiegel highlighted. “As platforms evolve and mature, additional factors may motivate mergers and acquisitions, such as rising costs of sports rights, advancements in advertising technology supporting AVOD, and integration of video game offerings.”

Could the rise of streaming bundles impact M&A activity? The PwC expert says that major partnerships and bundles are “highly attractive to consumers and could offer significant value,” even if pricing and other details are in most cases still to be detailed. “These collaborations may reduce the likelihood of headline-grabbing, transformative M&A,” said Spiegel. “However, market players excluded from these arrangements may struggle with managing churn and average revenue per user as customers prioritize value perception. This exclusion could drive consolidation among these entities as they strive to maintain relevance and scale.”