In an era of increasing schism in the U.S., our divided politics have united on at least one thing \u2014 an ever-closer focus on Big Tech\u2019s sheer scale, together with its frequently unbridled and unfiltered algorithmically-driven dollar motivations. Those forces \u2014 which studies show both drive teen depression and foment social stress and unrest \u2014 first placed Meta\/Facebook\u2019s Mark Zuckerberg at the top of DOJ\u2019s \u201cMost Wanted\u201d list. <\/p>\n
And now, according to investment banker Erik Hodge of The Raine Group (a guest on my recent M&A panel at \u2019s TheGrill event), \u201cAlmost every deal you see [Meta] try to do gets stuck with review. It\u2019s pretty remarkable how much scrutiny that they have on them.\u201d Case in point: Just last week, Meta was essentially forced to sell Giphy by U.K. regulators, demonstrating that antitrust scrutiny doesn\u2019t end at U.S. borders. Actually, the acquisition of $400 million was previously approved by U.S. authorities.<\/p>\n
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<\/p><\/div>\nBut make no mistake, it\u2019s not just Meta\/Facebook and its increasingly confined-and-isolated-in-the-metaverse leader Mark Zuckerberg that face the DOJ\u2019s music. Any deal made by Big Tech is subject to the specter antitrust. And it doesn\u2019t stop there. This specter is real for any player in the media or entertainment ecosystem with any size and scale. Antitrust is a threat \u201cis very real,\u201d according to Moelis & Co. banker Carlos Jimenez (another guest on my panel). \u201cWhen CAA did buy ICM, they went through the ringer in terms of just the antitrust review process,\u201dHe stated. Jimenez said that this, in turn, fuels a fundamental question within all boardrooms of today: \u201cBuyers and sellers are thinking, do we want to go fight the Department of Justice to go get a smaller transaction done?\u201d<\/p>\n
Andy Howard of private equity firm Shamrock Capital, a major player in M&E M&A, bemoaned that he \u201cfailed twice\u201dWhen two of his deals came under scrutiny for antitrust violations. Howard was referring to the scrapped deal to merge FanDuel\/DraftKings sports betting firms and his earlier ScreenVision\/National CineMedia deal. \u201cIt\u2019s awful,\u201dHoward shared his story with us at TheGrill. \u201cIt\u2019s a massive disruption to your business\u2026 so I do think it\u2019s in the mindset of operators and strategics right now thinking about how far I press [M&A]. Is it really worthwhile?\u201d <\/p>\n
Antitrust\u2019s chilling effect freezes both buyers and sellers. \u201cIf you\u2019re the one who\u2019s getting acquired,\u201dHoward stated, \u201cit\u2019s a big leap that you\u2019re going to have to make because you will be under scrutiny for a period of time. And that timeline is unknown.\u201d In other words, it\u2019s the kind of Hollywood spotlight no seller wants. Dead-end deals that cause major disruptions to the company’s operations and business dynamics.<\/p>\n
Antitrust\u2019s \u201cchill\u201d impacts all sectors of M&E. Emily Wang, a games specialist at investment banking firm LionTree, pointed out that the Microsoft\u2019s pending $70 billion mega-acquisition of Activision now finds itself directly in the DOJ\u2019s cross hairs and may not survive. \u201cActivision is trading at a discounted acquisition price, which indicates that the market is not sure that the deal will go through,\u201c she told me at TheGrill. Microsoft\u2019s nearly $2 trillion dollar market cap is pretty scary and menacing stuff, after all. Among other things, \u201cRegulators are discerning how much data is too much data for Microsoft to have,\u201d Wang said. And while Amazon\u2019s $8.5 billion acquisition of storied Hollywood studio MGM ultimately passed the Feds\u2019 antitrust test, industry insiders like Raine\u2019s Hodge were surprised by the high level of scrutiny the deal received at the time.<\/p>\n
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<\/p><\/div>\nMany of us understandably cheer the Feds\u2019 heightened antitrust focus on Big Tech players who have been left unsupervised for too long (and have seen their valuations skyrocket to multiple trillions at least in part because of it). And it\u2019s quite incredible, really, that politicians from both blue states and red states have climbed on board the antitrust train with such fervor \u2014 a fervor that many, including Shamrock\u2019s Howard, believe will not dissipate no matter which party controls Congress after the upcoming midterm elections. Less clear, however, is whether the DOJ\u2019s increasing vigilance will succeed. <\/p>\n
But is it really antitrust? \u201cwin\u201dDoes it really matter? The Feds (not only smaller competitors but also consumers often) \u201cwin\u201dBig Tech will think twice if there is more scrutiny. It is the mere uncertainty that drives behavioral change. And financial markets \u2014 and the mega-players in it \u2014 loathe uncertainty.<\/p>\n
This could be an opportunity for non-Big Tech buyers, who may be able to buy obvious valuable content and major studio franchise targets like Paramount and Warner Bros. If Comcast decides to sell this lower-margin segment of its business, it could also divest Discovery and possibly NBCUniversal. Perhaps Comcast decides to merge with Netflix and double down on media (both have similar market caps). This would allow Netflix to acquire the franchise content it desperately needs. It also creates a formidable non-Big Tech player that is significantly better rounded. In any event, the list of potential non-Big Tech M&A dance partners is longer than you think. Let\u2019s not forget that non-obvious buyer Vivendi \u2014 still largely a water-first conglomerate at the time \u2014 acquired Universal Studios from liquor-laced Seagram in 2001 (and later sold it to even more unfocused conglomerate, General Electric, after concluding that one part water and one part major Hollywood studio didn\u2019t mix well).<\/p>\n
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<\/p><\/div>\nIn these highly scrutinized times, there is only one certainty: Tim Cook, Satya Nella, Sundar Paichai and Jeff Bezos. \u201cgood old\u201d Mark Zuckerberg aren\u2019t particularly happy about any of it. Neither are investors of companies that otherwise would be ripe for the picking but are now left standing in the cold of M&A\u2019s big chill.<\/p>\n
But that doesn\u2019t mean that Big Tech won\u2019t give it the old college try. Apple, Microsoft, Amazon, and Google all have billions of dollars in their pockets to test the waters. Apple could buy Disney and its magical kingdom of evergreen content franchises (Pixar, Marvel) in a highly logical but not unreasonable mega media deal. \u201cStar Wars,\u201dApple TV+ will go hyper-fast with the help of our favorite Disney princesses and the Avengers. Apple and Disney share the same DNA, after all; Steve Jobs birthed Pixar and later served on Disney\u2019s board.<\/p>\n
While many of you may think that\u2019s an antitrust bridge too far, just think about it. Even if the Feds claim otherwise, \u201cvictory\u201d by forcing Apple to divest Mickey\u2019s invaluable ESPN piece of cheese, just as Disney divested Fox\u2019s 22 regional sports networks when it acquired Rupert\u2019s world of entertainment assets in 2019. Disney\u2019s The Avengers indeed \u2014 franchise gifts that keep on giving.<\/p>\n
For those of you interested in learning more, visit Peter\u2019s firm Creative Media at\u00a0creativemedia.biz<\/a>\u00a0and follow him on Twitter\u00a0@pcsathy<\/a>.<\/em><\/p>\n![\"Why](\"https:\/\/centralrecorder.com\/wp-content\/uploads\/2022\/10\/Antitrust-Law-Is-Big-Techs-MA-Kryptonite-or-Is.jpeg\" "\\"\\"")
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