Yahoo Finance Big Tech, flush with cash, doesn't want to buy your media company
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The ingredients for a headline-grabbing media deal are laid out neatly on the table.
Wall Street has punished entertainment stocks. New entrants have stiffened competition. Growth has slowed as audiences are inundated with options, inviting consolidation in a maturing industry.
Meanwhile, trillion-dollar tech giants are swimming in improbable piles of cash.
So, is a blockbuster acquisition right around the corner?
To former Disney exec Kevin Mayer, the answer is no. At least not when it comes to big deals involving the tech giants whose growth-centric, engineering focus may clash with the culture of storytelling creatives that populate Hollywood.
"Those cultural mismatches make buyers nervous," Mayer said at the Yahoo Finance Invest conference earlier this week.
But the sheer scale of these tech giants relative to prospective media buyers makes this speculation hard to tamp down. Apple (AAPL), for instance, which touts a market cap of nearly $3 trillion, hoards a cash pile of about $162.1 billion, according to its latest earnings report, a figure roughly equal to the market cap of iconic names like Disney (DIS).
Microsoft (MSFT), according to its most recent quarterly report, holds more than $143 billion in cash and short-term investments — about as much as the market cap of Verizon (VZ).
The sprawl and financial might of tech companies can also work against them. With elevated antitrust concerns in Washington and around state houses, regulatory issues are another obstacle to potential media deals.
"Whenever these big digital companies do almost anything, the regulatory scrutiny is massive," said Mayer, who was also previously the CEO of TikTok.
Moreover, the history of corporate America is littered with ill-fitting conglomerates, suggesting any cultural dissonance between tech and media isn't the only thing keeping these tie-ups on ice.
The failed $85 billion marriage between AT&T (T) and Time Warner, for example, screams out as a cautionary tale. Just four years after closing on its acquisition of a global media powerhouse, AT&T spun out the reconstituted WarnerMedia. The great boardroom chronicler James Stewart called the breakup "a strategic miscalculation unrivaled in corporate history."
The merger continues to ripple through the media world today. Discovery acquired WarnerMedia in its own turbulent mega-merger that's still being ironed out.
Still, the current media moment is one that appears ripe for more industry-defining deals in the years ahead. In Mayer's view, competition in the media industry and the costly, overlapping infrastructures will likely prompt dealmaking.
Disney (DIS) CEO Bob Iger has said he is contemplating selling off media assets — ABC is reportedly in the mix. Paramount (PARA) and Starz have also been widely discussed as potential acquisition targets for a buyer on the hunt for bigger audiences and the content that brings them.
Mayer is also advising Iger as Disney sorts through its options for its crown jewel sports network, ESPN, which is reportedly exploring a financial partnership with major sports leagues.
Disney last week said it would take full ownership of Hulu, handing over almost $9 billion to Comcast. In 2019, the company spent more than $70 billion for 21st Century Fox’s film and television studios.
David Zaslav, the head of Warner Bros. Discovery (WBD), is in the game too, saying during the company's earnings call this week that it’s in a position to spend more on potential acquisitions.
Perhaps the tech giants, clutching their coins and watching from a safe distance, know that buying a media company creates more problems than they're worth. And will let the media industry sort it out themselves.
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