Pay-TV/Programming M&A for 2019 Not Expected to Bring Many Major Deals

Don't expect any AT&T/Time Warner-scale mergers and acquisitions in entertainment and media this year, experts told us. The federal government partial shutdown isn't having a chilling effect on deals, but that could change the longer it lasts, they said. "Two weeks may not be the end of the world for a lot of transactions; two months could be," said wireline and wireless lawyer Laura Phillips of Drinker Biddle.

AT&T/TW isn't likely to spawn a slew of similar vertical deals in response, especially since one of the mostly likely companies that could follow suit -- Verizon -- indicated it's more focused on 5G than on video content, said TV analyst Alan Wolk. Instead, expect "a pause" of a year or so on major deals while the video industry waits to see the 2019 shakeout of such over-the-top services as Disney Plus and whatever Apple does, Wolk said. "Everyone's taking a wait-and-see attitude for 2019." He said deals could involve some smaller content producers, like AMC or CBS.

Broadcast consolidation also could slow as the industry focuses more on ATSC 3.0 adoption, Wolk said. OTT service consolidation remains at least a couple years off, and could be triggered when services that haven't had a hit that draws subscribers start struggling with high customer churn or sliding subscriber numbers, he said.

The current regulatory environment -- with DOJ and the FCC seen as favorable to transactions, DOJ opposition to AT&T/TW excepted -- is impelling companies to think about deals because that window could close in two years, said a cable lawyer with M&A experience. But stock market jitters and trade woes could create some hesitation, and programming seems to be at an inflection point in the OTT migration, meaning strategies and combinations may not be obvious, the lawyer said.

While 2017 and 2018 were dominated by big M&A deals, this year's focus will be more on those companies executing on their strategies, and more advertising industry changes including more use of targeted ads, said Kevin Westcott, head of Deloitte's U.S. telecom, media and entertainment practice. He said if those strategies -- such as going direct to consumer with large video libraries -- prove successful, that will trigger more vertical M&A by competitors seeking to keep up, though maybe not at the same scale, he said. Given demand for content, there could be deals this year of small content companies partnering or being bought by larger players, he said. There could be more push toward aggregation, with large distribution platforms also carrying smaller platforms as part of their offerings, with those aggregation agreements also potentially turning into M&A, he said.

Phillips said shutdown effects on M&A depend on both how long it continues and a deal's scope, with a larger transaction that involves interagency coordination possibly more disrupted by backlogs of work when the government resumes. She said the 2013 shutdown "was more of a hiccup than a major event" for deals.

Editor's note: This is the first of a two-part series on media M&A.