The Writers Guild of America has gone on strike this week in an effort to renegotiate streaming royalties, as a result of a change in technology and content distribution. Yet despite uncertainty in the industry, private equity firms are continuing to invest in the space.
“The content industry seems to have hit a bit of an air pocket right now, as streaming companies recalibrate their content spending and strategies, partly as a reaction to the economic slowdown,” says Brian Cassidy, a co-president and partner with Crestview Partners. “There are also potential industry disruptions on the horizon, as the WGA and SAG negotiate new deals with the studios that reflect new industry dynamics. However, we are big believers in the content ecosystem and see it growing for the foreseeable future.”
Cassidy notes that the industry’s tailwinds are structural changes, driven by permanent changes that will outlast current economic headwinds. He notes that in a historical context, content creation has been resilient through economic downturns. As a result of content changes to a more subscription-based model, the sector is less dependent on more cyclically tied corporate advertising spend.
New York-based Crestview Partners has partnered as a strategic investor with The Gersh Agency, the fourth-largest entertainment agency with over 300 employees and 125 agents across nine full-service departments.
“We are patient investors that are optimistic about the long-term future of the content ecosystem,” says Cassidy. “We also believe that following the recent combinations, acquisitions, and divestitures in the talent agency space, this is an exciting moment and opportunity for a firm that has remained solely focused on bespoke client representation.”
Cassidy attributes private investment’s interest in entertainment, especially entertainment agencies, to long-term trends but acknowledges the difficulties for private equity. “Without expertise, investing directly in television or film production companies or IP can be risky and/or expensive, and private equity firms are very focused on downside protection.”
For example, the firm is focused on growing demand and value for high-quality content. The investment in Gersh represents a derivative way of playing this trend without taking too much concentration risk, both in terms of content and creative talent.
The firm also has an investment in a global visual effects and post-productions services company, FC3, which it views as a ‘picks-and-shovels’ way of playing those same growth trends in high-quality content.
Alignment Growth successfully closed Alignment Growth Fund I, its inaugural $360 million growth equity fund that will invest in growth-stage media, entertainment, and gaming (“MEG”) companies.
“Media, entertainment and gaming is a $2.5 trillion industry globally and is constantly being disrupted by technology and new entrants,” says Alex Iosilevich, a managing partner with Alignment. “Currently, large-scale dealmaking is impacted by uncertain macroeconomic conditions, challenging credit markets, and heightened regulatory scrutiny. However, scale benefits can drive significant value creation in many sectors of MEG.”
Alignment notes that as the macro environment improves, the firm expects that companies with strong business models and balance sheets will look to capitalize on the dislocation, and as a result, restart the M&A cycle.
Iosilevich explains that scale benefits in the industry include improved profitability from leveraging shared functions across a broader portfolio of products and services. Additionally, depending on the sector, enhance cross-promotion, business intelligence and analytics capabilities as a result to access by a broader, more scaled user base.
How do you expect the WGA strike to pan out and are you worried any of your favorite shows might slump next year? Let me know at [email protected].
–Cole Lipsky
