Historical Stock Chart
6 Months : From Jun 2019 to Dec 2019
By Lillian Rizzo and Joe Flint
The ink is barely dry on the merger deal between CBS Corp. and Viacom Inc., and already Wall Street is anticipating which moves the combined company will make to bulk up further in an entertainment industry dominated by a few giants.
Executives at the companies have contemplated the idea of mergers with cable programmers including Discovery Inc. and premium network Starz or its owner, Lions Gate Entertainment Corp., people familiar with the situation say. Sony Corp.'s movie and TV unit, Hollywood studio MGM and AMC Networks Inc. are among other possible targets, industry executives and Wall Street analysts say.
The planned merger of CBS and Viacom brings together Viacom's several major cable channels including MTV and Nickelodeon -- and its iconic movie studio Paramount Pictures -- with CBS's flagship broadcast network and premium cable channel Showtime, among other assets.
The combined company would still be much smaller than competitors which have separated themselves from the media pack through major deals. AT&T Inc., which acquired DirecTV and Time Warner Inc. in recent years, has a $254 billion market capitalization, while Walt Disney Co., which last year took over the bulk of 21st Century Fox, is valued at $246 billion. CBS and Viacom have a combined value of $30 billion.
The larger media players believe their scale -- both in terms of financial heft and in the vast reservoirs of content they control -- will help them compete with streaming-video juggernaut Netflix Inc. as more consumers cut the cable-TV cord.
A former top Viacom executive said Viacom and CBS are late to the merger party. "They still don't have the scale required to compete with the bigger players," the executive said.
CBS and Viacom also could become a buyout target, industry analysts said, and further acquisitions by the merged company could make it a more attractive one.
Acquiring the merged company might make sense for Amazon.com Inc., whose streaming-video service Prime Video has been looking to reshape its programming strategy, analysts have said. The Paramount and CBS studios, with their stockpile of intellectual property and ties to talent, could be a logical fit, they said. Also, Amazon has made a big push into sports, and CBS's control of rights to NFL and NCAA basketball games could be a boon.
"Amazon is lacking content library, sports-infrastructure capabilities and a consistent pipeline of new shows," analyst Michael Nathanson of MoffettNathanson said. "To me it makes sense -- Amazon isn't 'all in' on the video business yet."
Still, this would only happen if Shari Redstone, president of National Amusements Inc., which controls Viacom and CBS, is willing to part with the combined entity down the road.
Viacom and CBS declined to comment. Representatives of Amazon, Discovery, MGM, Lions Gate, Sony and AMC also declined to comment.
Combining with other cable programmers would give CBS and Viacom more leverage when they negotiate channel-carriage deals with the big cable- and satellite-TV providers. The risk is that such deals will amount to doubling down on cable-TV networks at a time when cord-cutting is on the rise, further entrenching CBS and Viacom in the legacy media business.
CBS earlier this year kicked the tires on Starz, a person familiar with the matter said. Although no official offer was made, CBS floated a price tag of $5 billion for Starz, the person said. Starz's coming negotiations to renew pay-TV carriage deals with AT&T and Comcast Corp. will be a major factor in its fortunes.
Starz parent Lions Gate, the studio behind "The Hunger Games" and "Orange is the New Black," also could be a target for the combined CBS-Viacom, industry experts say.
Cable programming giant Discovery, home of TV channels such as Discovery, Food Network and HGTV, is expanding its push into subscription streaming TV. Discovery's cash flow could provide more cushion for future deals, said Mr. Nathanson.
A potential complication: Media mogul John Malone owns a significant stake in Discovery and would be a major force after any merger. "Whoever is interested in Discovery needs to be comfortable with John Malone being a part of the equation," said Neil Begley, an analyst for Moody's Investors Service.
AMC Networks, which owns channels including flagship AMC, SundanceTV, BBC America and IFC, also has been tossed around as a possibility. In recent years the network has notched some ratings winners with "The Walking Dead," "Fear The Walking Dead," and "Better Call Saul."
AMC "has some great franchises, a good amount of free cash flow and could be an easy roll-up for CBS-Viacom," Mr. Nathanson said. Still, some people close to Viacom and CBS believe such a tie-up is unlikely.
For now, figuring out how to integrate CBS and Viacom will be the top priority.
"It will probably take some time to digest the combination of the two companies, and their capabilities together will be a focal point," said Fitch Ratings analyst Patrice Cucinello. "But this is about scale and to more effectively negotiate contracts when they come up, so further deal activity is likely."
--Benjamin Mullin contributed to this article.
Write to Lillian Rizzo at Lillian.Rizzo@wsj.com and Joe Flint at email@example.com
(END) Dow Jones Newswires
August 13, 2019 16:11 ET (20:11 GMT)
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