The deal market, already on a slower pace in the past few years, crawled to a near standstill in 2008, with some of the biggest transactions conducted by cable companies outside of the television space.
But even though 2008 was a “famine” year on the deal front — compared to the “feast” years of the late 1990s and the earlier part of this decade — some analysts believe that the market for cable networks will at least pick up in 2009.
The biggest cable deal of 2008 was easily Landmark Communications’ sale of The Weather Channel to a group led by NBC Universal and the Blackstone Group for about $3.5 billion. But even at that price, the deal came in much lower than Landmark had first expected — when it announced the channel was on the block in January, it had hoped to attract as much as $5 billion.
And even for a property like Weather — which has full carriage, an obvious niche and a cult following — the sales process was at times a rough one. The auction for The Weather Channel lasted for a good seven months and sometimes appeared to be headed for the scrap heap. In the end, NBCU forged a deal that brought on private-equity partners — Blackstone and Bain Capital — to lessen the economic blow.
That skittishness in the deal market seemed to prevail in the coming months. The third- and fourth-largest deals of the year weren’t even for cable properties — News Corp.’s $1 billion acquisition of Dow Jones & Co., the publisher of The Wall Street Journal was No. 2, with Cablevision Systems’ $650 million acquisition of Long Island, N.Y., newspaper Newsday coming in third place.
And the second-largest deal wasn’t exclusively cable — Comcast, Time Warner Cable and Bright House Networks agreed in May to invest $1.7 billion in wireless-broadband company Clearwire. Internet-search giant Google and computer-chip maker Intel kicked in the remaining $1.5 billion needed to help Clearwire build a $3.2 billion nationwide WiMAX network. As part of that deal, which also includes perennial cable wireless partner Sprint Nextel, Clearwire will serve as a wireless wholesaler to the cable operators, who will have full control over the pricing and branding of their wireless product.
Collins Stewart analyst Tom Eagan said that while the deal market has been more active in the past, he believes it will pick up next year. One of Eagan’s top candidates for the auction block in 2009 is Cablevision Systems’ Rainbow Media Holdings networks — AMC, WE TV and IFC.
“We think Rainbow will be closer to a deal for their networks,” Eagan said. “And we think we will finally have the breakup of Liberty Entertainment to an asset-based stock.”
Liberty Media created Liberty Entertainment in March as a tracking stock housing its 52% interest in DirecTV Group, its 100% interest in premium network Starz Entertainment and online gaming company FUN Technologies. In September, Liberty Media said that it was making moves to convert the tracking stock into an asset-based entity.
That, many analysts believed, was the first step toward Liberty Entertainment acquiring the remainder of DirecTV stock that it doesn’t already own.
Eagan believes that there will be rising interest for cable networks in 2009, mainly because of their dual revenue streams — affiliate fees and advertising revenue.
“I think there will be interest in cable networks in 2009; that’s when you will see some deals made,” Eagan said, adding that as cable operators make moves to increase their channel capacity — through all-digital initiatives — their appetite for programming services may increase.
Eagan said while that additional capacity may be used mostly for additional HD channels and for DOCSIS 3.0, “we may see some interest again in cable networks.”
Still, the deal climate will depend on the overall economy. But that, too, could prove to be an opportunity for buyers seeking bargains and a disadvantage for sellers who may be forced by economic conditions to sell assets.
But even flush buyers could be wary, Eagan added — a notion that was backed up by Time Warner Inc. CEO [and now chairman] Jeff Bewkes at the UBS Media and Communications conference in December.
At that conference, Bewkes said that Time Warner, which stands to receive a $9.2 billion cash dividend payment from Time Warner Cable once that operation splits off from the parent next year, will be very cautions in looking at potential deals.
“I don’t want to rule out sensible acquisitions, but the history of our company would make you concerned about the dangers of acquisitions if they are not done carefully,” Bewkes said at the conference.