Biden, Trump and regulatory frustration

Three CEOs of major media and telecommunications companies privately told CNBC they are hoping for new regulatory policy — perhaps in the form of a presidential administration change — to make needed consolidation easier. Existing rules that cap regional broadcast station ownership prevent or deter companies such as SinclairTegna, Nexstar and Gray Television from merging.

There’s additional concern Federal Trade Commission Chair Lina Khan or any other regulatory leaders appointed by President Joe Biden in 2024 and beyond won’t look kindly on the combination of cable and wireless assets. While companies in Europe own both, cable ownership is still separate from wireless network operators in the U.S. Bringing companies such as Comcast and Charter together with either AT&TVerizon or T-Mobile could increase corporate pricing power and eliminate competition, which Khan would likely see as anti-competitive.

There’s also the ongoing dance between NBCUniversal, Warner Bros. Discovery and Paramount Global. Many media watchers assume that two of those three companies could merge, leaving the third without a dance partner. How regulators would view a combination of those assets is still to be determined. A deal between NBCUniversal and Paramount Global, which would put together broadcast networks CBS and NBC under one corporate roof, seems like a regulatory nonstarter without divesting one of the networks.

“There will be a final round of consolidation in the industry,” said John Harrison, EY Americas media and entertainment leader. “Structurally, it’s not sound in terms of the economics for streaming. Companies need to get their cost structures right as linear TV winds down. But there’s a hesitancy to pull the trigger on anything massive when you know how fast the disruption is taking place, and you’re looking at an 18- to 24-month-long review process to get a deal approved.”

Brian Roberts, chief executive officer of Comcast, arrives for the annual Allen & Company Sun Valley Conference, July 9, 2019 in Sun Valley, Idaho.

Brian Roberts, chief executive officer of Comcast, arrives for the annual Allen & Company Sun Valley Conference, July 9, 2019 in Sun Valley, Idaho.

If the two presidential nominees are Biden and former President Donald Trump, relief may not be coming. Trump’s Department of Justice blocked AT&T’s acquisition of Time Warner before a judge overturned the decision. Trump has also been publicly antagonistic toward NBC and parent company Comcast, calling CEO Brian Roberts a “slimeball” as recently as last month in a post on the ex-president’s social media platform Truth Social.

Ironically, that could make some companies less bothered by regulatory issues. If executives feel both Republican and Democratic administrations may be obstacles, corporate boards could decide to approve moving forward with transformational deals sooner rather than later. If a deal is blocked, they can try their luck in court.

Where’s the growth?

Since the “Great Netflix Correction” of 2022, there isn’t a unifying growth narrative for media and entertainment companies. Cable operator stocks continue to move up and down on home broadband additions or subtractions — a concerning trend with growth stalling in 2023. AT&T and Verizon shares have been stuck in neutral for more than a decade, even as they’ve gained fixed wireless customers this year and likely will add more next year.

Traditional TV subscribers again dropped by the millions this year. As eyeballs diminish, advertising dollars will also decline. Next year will also likely be another year of industry losses for most major streaming services. Disney, Paramount Global and NBCUniversal have all pegged 2025 as their flagship streaming services’ first full year of profitability.

NEW YORK, NEW YORK - NOVEMBER 29: President and C.E.O. of Warner Bros. Discovery David Zaslav speaks during the New York Times annual DealBook summit on November 29, 2023 in New York City. Andrew Ross Sorkin returns for the NYT summit for a day of interviews with Vice President Kamala Harris, President of Taiwan Tsai Ing-Wen, C.E.O. of Tesla, Chief Engineer of SpaceX and C.T.O. of X Elon Musk, former Speaker of the U.S. House of Representatives Rep. Kevin McCarthy (R-CA) and leaders in business, politics an

President and C.E.O. of Warner Bros. Discovery David Zaslav speaks during the New York Times annual DealBook summit on November 29, 2023 in New York City

Media executives have spent 2023 right-sizing their businesses and pulling back on content spending to accelerate profitability paths for their flagship streaming services. Warner Bros. Discovery Chief Executive David Zaslav had his pay package altered so that his bonus is tied to his company’s free cash flow generation and debt payback. Disney announced last month its cost savings for the year will be $7.5 billion — $2 billion more than its previous target of $5.5 billion.

But the industry remains stuck at depressed valuations relative to two or three years ago. Disney is preparing for a proxy battle with activist investor Nelson Peltz and former CFO Jay Rasulo, who plan to campaign for board seats based on Disney’s poor performance relative to the S&P 500.

“The [Disney] board and CEO [Bob Iger] appear to have no conviction that things will get better,” Peltz’s Trian Fund Management said in a statement Thursday.

Beyond financial metrics, several executives privately acknowledged morale has become an increasing concern at legacy media companies. When uncertainty is so high, with few clear growth prospects to generate excitement and layoffs rampant, it’s hard to generate cultures of prosperity and retain top talent. One executive noted he’s increasingly hearing from peers that running media and entertainment companies just isn’t as fun as it was five or 10 years ago.

2024 should be an inflection year for the industry. Either conditions will improve or they won’t. If they don’t, expect fireworks in 2025.

Disclosure: Comcast is the parent company of NBCUniversal, which owns CNBC.

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