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February 27, 2018
by Eric Peckham
Happy Tuesday, media friends.

Based on your feedback and my own enjoyment, my goal is to include more commentary in MediaDeals whenever I've time to do so.

Today I want to talk about exhibitors...Amid the global shift to streaming video, are exhibitors (aka movie theater companies) doomed?

Let's step back: what role do exhibitors play in the market? 1) They curate and host Hollywood's new releases so mass audiences know what to see; 2) they provide social, in-person media experiences for the family, for dates, for fun; 3) they deliver digital ads to captive, in-person audiences. 

I look to Toronto-based Cineplex as a hint at how an exhibitor can continue to play this role in an evolving industry. (It's more than just offering 3D glasses, recliner seats, and beer.)

Cineplex is the largest exhibitor in Canada, with 163 cinemas. Its box office revenue and concessions revenue are roughly equal (as is normal) and like competitors, they've added non-traditional programming like live streams of the opera and boxing matches plus films/livestreams for large immigrant populations. But that's just the start. Cineplex is seizing opportunities that fit the broader definition above.
  • Decide you want to stay in for the night? Cineplex offers TVOD films to stream right there on their website, continuing to guide you to new(er) releases from Hollywood. 
  • Want to go out but not to the movies? Cineplex has The Rec Room, Playdium, upcoming TopGolf venues, and other physical restaurant-and-entertainment experiences.
  • More of a gamer than a cinephile? Cineplex now owns an esports tournament organizer (online and offline), WGN. And it recently opened VR experiences in two of its Toronto and Ottawa theaters.
  • Regularly do any of these? The SCENE rewards program has you covered with discounts and other membership perks. It has 9M members in a country of 36M people.
  • Want to sell digital ads to in-person audiences? Cineplex has that covered too. They handle the ads not only in their theatres but in most of their competitors, reaching 94% of Canadian movie-goers. And they're leveraging their expertise to expand digital ad units in malls, banks, quick service restaurants, and other public locations around North America.
In the short term, most exhibitors are enhancing the cinema experience in incremental ways so the corresponding increase in ticket prices for a luxurious experience makes up for the decline in attendees. But ultimately the opportunity is in evolving the whole business like Cineplex is doing. (Many exhibitors won't stay ahead of the curve, of course, but that's an opportunity for entrepreneurs and activist investors.)

Over the next 5 years, expect social AR and VR experiences to be particularly transformational for exhibitors smart enough to recognize the market that will arise there (already visible with VR arcades in China).

Michael Kives...the CAA agent with clients like Bruce Willis and Jesse Eisenberg (and a Democratic Party fundraiser who was once a Clinton White House staffer) is launching K5 Global, an advisory firm guiding corporates, governments, and startups on a range of activities across media and politics. The announcement included quotes from Warren Buffett and Evan Spiegel endorsing the new put that in your pipe and smoke it, I guess. (link)
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  • **Sky Plc., Europe's largest pay-TV operator, received a $31B (€25B) takeover offer from Comcast (£12.50 per share), in competition with the existing £10.75 per share offer from 21st Century Fox (already a 39% owner) which has been under regulatory scrutiny. Comcast shares are down 5% at the news while Sky shares are up 20%.**
    • 21st Century Fox offered (over a year ago) $15B for the remaining 69% and has been battling British regulators for approval after a ruling in January that the acquisition would "not be in the public interest."
    • Rupert Murdoch has been determined to buy Sky since its predecessor BSkyB formed in 1990 as an equal joint venture of his Sky Television and the rival British Sky Broadcasting since the young satellite TV market couldn't sustain two companies. He was blocked by regulators in his prior takeover attempt in 2011 amid the News Corp phone hacking scandal.
    • Current 21st Century Fox CEO James Murdoch is the Chairman of Sky Plc. and was previously CEO of the British satellite TV giant's predecessor BSkyB from 2003-07.
    • Disney's pending acquisition of 21st Century Fox is supposed to include its 39% stake in Sky and hope to completely bring Sky into the Disney fold. While there's a decent chance of a bidding war here as the Murdochs put up a fight for Sky, there's also the chance that after all these years they decide its Disney's problem now.
    • British regulators will be keen on the idea of keeping Sky away from the Murdochs, who already own a portfolio of British news media that critics claim is too powerful.
  • **iHeartMedia Inc. received an offer from Liberty Media Corp to buy a 40% stake for $1.16B (€950M) alongside a proposed bankruptcy restructuring of the radio broadcaster. iHeart is in crisis over its $20B+ in debt after missing a $105M interest payment on February 1.**
    • Liberty Media owns satellite radio giant Sirius XM.
  • All3Media, one of the UK's largest independent TV/film production companies (and joint venture of Discovery Communications and Liberty Media), is investing in a new London-based production company, Unstoppable Film and TV, and will handle its international distribution. (link)
  • Performance reports:
    • Cineplex: FY17 revenue of USD$1.23B (€990M) (+5% yoy) with $186M (€151M) in adj EBITDA (+1%) and $55M (€45M) in net income (-9%). Q4 revenue was $336M (€273M) with $63M (€51M) in adj EBITDA and $23M (€18M) in net income.
      • Read into the details of the company's operations: (link)
    • Discovery Communications: FY17 revenue of $6.873B (€5.6B) (+6% yoy) with $713M (€581M) in operating income (-65%) and a $313M (€255M) net loss. (link)
    • NBC Sports wrapped up its Olympics coverage with a fresh $920M (€750M) in its wallet from ad sales, a record income for Winter Olympics coverage as it averaged 20M primetime viewers each day.
      • NBCU's current contract for exclusive Olympics coverage in the US market through 2032 includes upcoming Games in Tokyo (Summer 2020), Beijing (Winter 2022), Paris (Summer 2024), and on home turf in Los Angeles (Summer 2028) plus 3 other Games at TBD locations.
    • Netflix is producing its first Arabic original series: it's called Jinn and follows a group of teenagers who meet a ghost. This is the latest in Netflix's expansion efforts in the Middle East.
  • Axel Springer's US president (and CEO of Axel Springer Digital Ventures) Jens Müffelmann is leaving the company in order to pursue opportunities in VC/PE.
  • Fast Company, the business publication owned by Mansueto Ventures, has hired Vanity Fair deputy editor Stephanie Mehta as its new Editor-in-Chief. She replaces Robert Safian, who recently left after 11 years in the role. Her background has a heavy focus on running live events in addition to being an editor, suggesting events as a growth priority at Fast Co.
  • Splice, a platform that offers collaboration tools for musicians, is acquiring Indaba, an online community for creating remixes and musical collaborations. Indaba has one million users and 8 employees. (link)
  • Amazon's Amazon Music division has hired Dan McCarroll, the former president and head of A&R for Warner Bros. Records, as its new Global Head of Originals and Artist Relations.
  • Performance reports:
    • Vinyl records sales in the US were up 20% yoy in 2017. Vinyl now accounts for 10% of all physical album sales in the country. (link)
Digital Learning
  • Discovery Communications is selling a majority stake in its Discovery Education division, which sells digital textbooks and a range of other K12 content resources for teachers, to private equity firm Francisco Partners for $120M (€98M). It will retain a minority stake an continue licensing the Discovery Education brand name to the spun-out entity. (link)
  • Performance reports:
    • 2U Inc. - the edtech company (where I once worked) that powers online master's degrees for top universities like Yale, Georgetown, and UC-Berkeley - reported FY17 revenue of $287M (€234M) (+39% yoy) with $11M (€9M) in adj EBITDA (+153%) and a net loss of $29M (€24M).
      • 2U went public in 2014 at $13/share (market cap $500M) and is now at $84/share (market cap $4.38B), anchored in long-term revenue-share partnerships with universities and overperforming enrollment figures.
      • From a media perspective: 2U not only offers a tech platform over which the whole university experience is run, but it leverages the data from online classes and its own production facilities to help professors create engaging content and live classes.
  • Vodafone is selling its stake in its (financially unsuccessful) Vodafone Qatar subsidiary to joint venture partner Qatar Foundation for €301M ($371M). The British telecom has owned 51% of their JV vehicle which controls 45% of Vodafone Qatar. The Qatar affiliate will remain Vodafone branding for at least 5 years.
    • Vodafone has been selling off its minority holdings in affiliated telecoms outside its core markets.
MediaDeals is a daily tracker of M&A, investments, and key deals across the global media industry. It is produced by Eric Peckham as part of
Copyright © 2018 Eric Peckham, All rights reserved.

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