Uncertainty on Multiple Fronts
The overarching narrative for 2024 revolves around uncertainty in three key areas: interest rates, regulatory policy, and overall growth prospects. Corey Martin, managing partner at entertainment law firm Granderson Des Rochers, believes that the industry will gain more clarity on these topics in 2025. He anticipates that next year will be focused on preparation rather than actual transformation, with sustained uncertainty as a continuation of trends seen since mid-2022.
The Federal Reserve’s plans for rate cuts in 2024 could have a significant impact on the media and technology sectors. The benchmark 10-year Treasury yield hit a 16-year high in October but has since decreased as the Federal Reserve signaled its intention to implement multiple cuts. Lower interest rates may lead to transformational deal-making in 2025, as companies will wait for cheaper financing before acquiring large assets. Media and technology executives have expressed concern about operating in the current monetary policy environment and are likely to wait for more favorable conditions before pursuing major deals.
Potential Strategic Transactions
Shari Redstone, chair of Paramount Global, has been in talks to potentially sell National Amusements, the controlling holding company of Paramount Global. If this deal takes place in 2024, it could trigger a wave of strategic transactions within the industry, including the sale of struggling cable networks to private equity firms. These transactions may occur regardless of the macroeconomic environment.
CEOs in the media and telecommunications sectors have privately expressed their desire for new regulatory policies that would facilitate consolidation. Current regulations, such as caps on regional broadcast station ownership, hinder mergers and acquisitions. Concerns also exist regarding regulatory leaders appointed by President Joe Biden, who may view the combination of cable and wireless assets as anti-competitive. The potential for mergers between major companies like NBCUniversal, Warner Bros., and Paramount Global faces regulatory challenges, making consolidation a complex process.
The Influence of Presidential Nominees
The regulatory environment could be affected by the outcome of the presidential election and the nominees. Some media and entertainment companies hope for regulatory policy changes, particularly if there is a change in presidential administration. However, if the presidential nominees are Biden and former President Donald Trump, relief may not be forthcoming. Trump’s Department of Justice previously blocked AT&T’s acquisition of Time Warner. Executives may view both Republican and Democratic administrations as potential obstacles to deal-making and may choose to move forward with transformational deals sooner if they anticipate regulatory challenges.
Since the “Great Netflix Correction” of 2022, there is no clear growth narrative for the media and entertainment industry. Cable operator stocks fluctuate based on home broadband additions or subtractions, which is a concerning trend as growth has stalled in 2023. While AT&T and Verizon have gained fixed wireless customers, their share prices have remained stagnant for over a decade. As viewer numbers decrease, advertising revenue also declines. Major streaming services, including Disney, Paramount Global, and NBCUniversal, do not expect profitability until 2025.
Industry Challenges and Cost Saving Measures
Media executives have spent 2023 focusing on streamlining their businesses and reducing content spending in order to accelerate the profitability of their flagship streaming services. Warner Bros. Discovery’s CEO, David Zaslav, has tied his bonus to the company’s free cash flow generation and debt payback. Disney has announced additional cost savings of $2 billion, bringing their total for the year to $7.5 billion. However, the industry continues to face depressed valuations compared to previous years. Disney is preparing for a proxy battle with activist investor Nelson Peltz and former CFO Jay Rasulo due to its underperformance relative to the S&P 500. Beyond financial metrics, executives recognize that morale is becoming a concern within legacy media companies. Layoffs, a lack of clear growth prospects, and overall uncertainty have made it challenging to foster a prosperous culture and retain talent.
In conclusion, 2024 is expected to be a year of sustained uncertainty for the entertainment and telecommunications industries. However, while challenges lie ahead, industry players are preparing for potential opportunities in 2025 and beyond.