The frenetic pace of mergers and acquisitions that reshaped Hollywood in 2018 is likely to slow in 2019, after media companies spent this year racing to adapt to a new world order in which technology giants have forged direct relationships with consumers and recommend entertainment experiences that are tailored to an individual’s tastes and preferences.

“Global platforms like Netflix, Google, Facebook, Microsoft, Apple and Amazon are exerting enormous pressure on traditional standalone media models, and driving the need for scale, integration and differentiation even as they position themselves as the single address for every conceivable consumer need,” wrote LionTree CEO Aryeh Bourkoff in his year-end letter to investors.

Disneyland Fox
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The big media deals that defined 2018 — chief among them, the Disney-Fox combination that’s still awaiting final regulatory approval — allowed traditional studios to take advantage of the efficiencies of scale to better confront the challenges posed by tech rivals.

For these companies, the year ahead will be all about integration and execution. And while media consolidation may well continue into 2019, the pace of dealmaking is likely to slow, with bankers and insiders citing an array of reasons for the more deliberate approach including a more volatile economic picture, the lack of last year’s newly minted tax cuts, rising interest rates and lagging stock prices.

“While I believe there is still significant capital in private equity, there may be limits to deal sizes from here on out,” wrote Bourkoff.

The rear-view mirror, though, is filled with action. M&A in the global “TMT” sector (telecom, media and technology) surged 22% from 2017 levels to $793 billion in 2018, according to figures from Bloomberg. (Though let’s spare a thought for the mega-deal that didn’t come to pass: the long-expected reunion of CBS and Viacom.)

In the two biggest conquests, Disney finalized its plan to acquire most of 21st Century Fox for $71.3 billion after fending off rival bids from Comcast, and AT&T got a federal judge’s blessing to formally close its $81 billion deal for Time Warner. The Disney-Fox deal is expected to close during the first quarter of 2019, after the deal clears its final regulatory hurdles outside of the U.S.

Comcast, undeterred by losing out on Fox’s studio assets, edged out Fox and Disney to acquire European pay-TV giant Sky for a cool $40 billion, bringing a key chapter of Rupert Murdoch’s empire-building narrative to a close. Discovery also sealed its $14.4 billion takeover of Scripps Networks Interactive and UK exhibitor Cineworld scooped up Regal Cinemas for $3.6 billion. Nexstar swooped in to buy Tribune Media for $4.1 billion after Sinclair Broadcast Group was rebuffed by regulators in its own Tribune quest. (See a chart of the year’s biggest deals below.)

AT&T CEO Randall Stephenson

There is an overhang of regulatory uncertainty as the industry rolls toward the 2020 election cycle, still processing the divergent results of deal reviews and wondering about the approach of a new administration. “Any deal of consequence would have to be announced in the first half of 2019,” predicts Pivotal Research Group. The Department of Justice’s decision to pursue the first lawsuit opposing a vertical merger (AT&T-Time Warner) in more than 40 years continues to cast a shadow even though a federal judge rebuffed the suit and allowed the merger to proceed. (The government’s appeal remains pending.)

Many of the buyers are also still playing python, trying to digest the large mammals they have just swallowed. Wall Street has scrutinized the high debt levels of AT&T and Comcast, which have become the two biggest companies in America.

The stock prices of the 50 top media and tech companies are almost all within range of their 52-week lows. Disney shares have bucked the trend somewhat due to the company’s steady theme park revenue, but in general the sector is slumping, which can hamper flexibility.

“You have to grow. Whether that’s organically or through acquisitions, you still have to grow,” observes one veteran media executive. “That’s what a lot of people forget. And when you have these limitations, it makes it difficult to grow.”

Despite the warning signs, there remain a lot of ripe targets in the media business, especially content-rich independent players like MGM, Lionsgate and AMC Networks. While some likely buyers like Verizon have reassessed their interest in media, other companies (Charter, for one) appear to have the wherewithal to make more deals. And most analysts expect CBS and Viacom to finally tie the knot soon, with Fox also possibly exploring a merger with News Corp.

One zone of concern, despite the larger economic picture, is digital, where valuations have plunged over the past year. Vice Media was valued at $5.7 billion when it got an investment in mid-2017 from private equity firm TPG, but when Disney recently took a $157 million write-down on its Vice stake, the move implied a shrunken valuation in the range of $2.5 billion. Distressed digital properties like AwesomenessTV and Mic sold for a fraction of their original value in 2018, and former high-flier BuzzFeed has said it would be well-served by merging with not one but several direct competitors.

AwesomenessTV

As digital properties consolidate, one scenario that will not die is that of a tech giant like Amazon, Apple or Google buying a traditional media company. That vision was reinforced by reports that Amazon has entered the bidding for the Fox regional sports networks that Disney must shed in order to get regulatory approval for the Fox deal; the Jeff Bezos-run giant is also reportedly kicking the tires (along with Sinclair Broadcast Group) of the YES Network for the remaining 80% stake worth $5 billion-$6 billion.

“It’s easy to look across the aisle or over your shoulder and speculate that Big Tech is going to just roll it all up,” one media investor says. “But that ignores the cultural issue. Why would technology companies, which specialize in user interfaces and data, want the legacy headaches of operating networks or studios or other 20th century assets?”

Cultural integration is not just a consideration for media and tech firms pondering get-togethers. It is a key elements with all of the pending deals between rival companies. While there has been no end of blue-skying about the combined future, Disney will soon have to lay off thousands of workers and get everyone in its newly expanded choir singing from the same page in the hymnal.

Avoiding an AOL or General Electric culture clash will be crucial as these companies ramp up direct-to-consumer streaming services and other new offerings. And then there are emerging areas like smart speakers, 5G wireless and sports betting that will likely whet dealmaking appetites.

“We think the push towards consolidation in so-called traditional media will continue,” wrote Pivotal analysts Jeffrey Wlodarczak and Brian Wieser in a recent report. Cost-cutting is the primary motivation, they said, but dealmakers will also have “an eye towards securing negotiating leverage with distributors and advertisers alike.”

Biggest Media Deals Of 2018

company amount completion
AT&T-Time Warner $79.1B Closed in June
Disney-21st Century Fox $71.3B Expected to close 2019 
Comcast-Sky $39B Completed this fall 
T-Mobile-Sprint $26B Announced in April 
Discovery Communications-Scripps Networks Interactive $14.6B Closed in March 
Nexstar Media Group-Tribune Media $4.1B Announced in Dec
Gray Television-Raycom Media $3.65B Expected to close Jan 1 
Cineworld-Regal Cinemas $3.6B Closed in Feb
SiriusXM Holdings-Pandora Music $3.5B Announced in Sept 
Meredith Corp-Time Inc. $2.8B Closed in Jan 
AT&T-Otter Media (The Chernin Group’s share) $1B Announced in Aug