August 8, 2019

Breakingviews: European TV M&A belongs on the cutting-room floor

by Breakingviews.

TV crossover shows are often gimmicky affairs wheeled out when writers have run out of ideas. Witness the dreary Family Guy-Simpsons episode from 2014 – long after both cartoons had passed their peak. European broadcasters like ProSiebenSat.1 should bear that in mind as Italian peer Mediaset pushes for tie-ups in the struggling sector.

The 2.7 billion euro German group, which reported second-quarter results on Wednesday, illustrates the problems facing traditional broadcasters across the continent. ProSieben Chief Executive Max Conze squeezed out a decent quarter: revenue rose 4% year-on-year to 947 million euros, as its fast-growing production and e-commerce units offset shrinking advertising sales in its main TV business. But Conze has to invest all that gain and more in slicker technology and new shows to keep viewers from switching to Netflix and advertisers to Facebook and Google. As a result, his EBITDA margin fell to 22.5% from 28.4% last year.

With such heavy investment requirements, it’s easy to make an argument for collaborating with a similarly-placed peer like Mediaset, which is controlled by former Italian Prime Minister Silvio Berlusconi’s family and bought almost 10% of ProSieben earlier this year. The Berlusconis have called for consolidation to ease the burden of projects such as expensive TV ad-targeting technologies. It wants to set up a Dutch holding company housing others assets including a stake in 1.7 billion euro, Madrid-listed Mediaset España Comunicación.

Yet Conze and his peers – such as Carolyn McCall at Britain’s 4.3 billion pound ITV – should ignore the calls. About 70% of European broadcasters’ TV operating costs stem from making and buying shows, Goldman Sachs analysts reckon. And since most of those shows are local-language productions, which don’t travel well, the cost savings are small. Meanwhile, it’s possible to cooperate on technology without introducing the complexity of a merger: the European Media Alliance, whose members include Britain’s Channel 4 and ProSieben, sells pan-European digital ad space for different broadcasters.

The uninspired Family Guy-Simpsons tie-up’s nadir was a contrived punch-up between protagonists Peter Griffin and Homer Simpson. Similar – if non-violent – spats are a risk when collaborating with strong characters like Berlusconi. Given the slim benefits on offer, European broadcaster M&A – like most TV crossovers – belongs on the cutting-room floor.


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