Breakingviews: Private equity will be potent Hollywood antihero

Buyout barons want to become kings of content too. Blackstone’s acquisition of two film-making firms in 2021 positioned the private equity firm as a potential supplier to broadcasters and streaming platforms desperate for programming. While it’s a new direction for the buyout industry, it could be a smart move, provided Hollywood’s new stars don’t disrupt the old guard too much.

Steve Schwarzman’s financial empire bought up Reese Witherspoon’s company Hello Sunshine and children’s-TV maker Moonbug Entertainment for a combined $4 billion or so in 2021. That’s a departure from the real estate, industrial and infrastructure investments for which private equity is best known. Schwarzman’s $160 billion firm has been venturing further away from asset-heavy businesses and into more speculative growth companies, from Ancestry.com to dating app Bumble.

Blackstone steps into a battlefield. Netflix, Amazon.com, WarnerMedia’s HBO Max, Apple and Comcast’s Peacock are all making content too. Walt Disney alone plans to spend $33 billion in 2022 on movies, TV shows and sports rights, a 32% year-on-year increase. But a private-equity newcomer would have an advantage: rivals all have their own broadcast channels and streaming services to feed, whereas a standalone content-producer could sell each show to the highest bidder, becoming what some industry executives liken to an “arms dealer.”

While private equity firms may lack Tinseltown experience, they have many of the right qualities. Blackstone, KKR and their peers are experts at handling talent, and concocting generous, performance-linked pay packages to keep their managers keen. Blackstone has snagged former Disney executives Kevin Mayer and Tom Staggs to head its entertainment venture. Witherspoon was paid partly in unlisted equity in the new media division; Netflix tends to pay its talent in cash.

Whether Blackstone can generate big profit depends also on how it cashes out in the future, since exiting at a high valuation is an integral part of the private equity model. One option is to take the company public, as Bumble did in 2021. More likely is a future sale to an established media giant. So while Blackstone may help to bid up the price of creative talent, it will also want its customers to remain healthy and wealthy enough to fund a profitable denouement.

(This is a Breakingviews prediction for 2022. To see more of our predictions, click here.)