M&A Silence From ViacomCBS, Comcast Speaks Volumes on Regulatory Climate
When ViacomCBS officially announced during its second-quarter earnings results Thursday that streaming service Paramount+ would be launching on Sky platforms in key European markets next year, it wasn’t exactly shocking.
But the first report of their meeting got a bigger reaction because it played into expectations that a merger between these two companies could be in the offing. No wonder Wall Street analysts were looking for more color on additional M&A possibilities on the ViacomCBS call.
As soon as the Q&A portion kicked off, the very first question was about further M&A prospects, but CEO Bob Bakish played it safe by saying, “Q2 metrics point to streaming strength and ongoing potential of organic growth.” He added that the company will always evaluate every opportunity from a shareholder value lens.
“Organic growth” was a phrase Comcast CEO Brian Roberts also used to describe NBCUniversal last week in its earnings call. He went so far as to say Comcast does not need M&A, explaining that the company already had everything it needed to compete.
Though consolidation among the entertainment conglomerates has been deemed inevitable as they attempt to keep up with the larger tech giants, Bakish and Roberts declining to talk up their M&A prospects at a time when there seems to be an urgent need for it in the marketplace strikes a curious chord.
Bakish seemed to put his confidence for going it alone in Paramount+ and its overall streaming strategy going forward. Across ViacomCBS’ three services, which include Paramount+, Pluto TV and Showtime OTT, the company added 6.5 million global subscribers, bringing the total subscriber base to over 42 million. Bakish noted Q2 results reflect that the streaming strategy is really working and he doesn’t think this is a winner-takes-all market.
But the fact of the matter is ViacomCBS just doesn’t have the same scale as the leaders in the space such as Netflix or Disney+. The question is this: How patient will investors be for the company to play catch-up with its rivals?
Just because ViacomCBS and Comcast didn’t announce a bigger merger plan doesn’t mean the Sky deal isn’t a prelude to full-on M&A in their future.
So what’s holding ViacomCBS and Comcast back from going all in on a more comprehensive merger especially when the stock could use a meaningful boost? Probably a very uncertain regulatory climate.
The biggest hurdle to a deal may be getting past the Biden administration, which is signaling a more aggressive antitrust approach. Biden’s Federal Trade Commission Chair appointee Lina Khan and Department of Justice Antitrust Division nominee Jonathan Kanter are both notorious for their stances on antitrust regulation, which doesn’t bode well for the media companies looking to consolidate in a highly saturated and competitive market.
The companies could be waiting to see what happens with the WarnerMedia-Discovery deal before announcing any plans of their own. Despite skepticism of possible regulatory pushback, Discovery CEO David Zaslav has been very optimistic that the WarnerMedia-Discovery merger will be given the all-clear by regulators to go along as planned.
What’s more is that in striking contrast to Roberts and Bakish, Zaslav has repeatedly publicly expressed an interest in even more acquisitions.
At least ViacomCBS has the luxury of going the wait-and-see route. For now, the company has a healthy enough balance sheet, with $5.4 billion of cash on hand, to wait for a better grasp of the regulatory landscape before making any major M&A moves. Management mentioned that investing in streaming is the best use of capital right now, and quite frankly, that’s what investors want to hear because companies must be willing to pay to play in this kind of landscape.
For now, investors will have to take comfort in the solid Q2 results and positive commentary from management about the future trajectory of ViacomCBS’ business. But whether key words and phrases like "expansion," "continued momentum" and "material improvement" will be enough to keep investors happy in the long term is up for debate.