Top media banker on why 2019 could be tough on Netflix and other big players
S E E D E D C O N T E N T
Aryeh Bourkoff is a banker at the nexus of dealmaking in the media, tech and telecoms businesses on a global scale, and he’s got a message for companies headed into 2019: Get ready to deliver those streaming subscribers, because investors are going to be a whole lot less forgiving if you don’t.
Bourkoff, founder and CEO of investment bank LionTree, said in an interview with NBC News that rising interest rates will affect the volume of dealmaking, and investors won’t be quite so tolerant of financial splurges by barely profitable companies.
This year, LionTree advised SurveyMonkey on its proposed IPO, worked with John Malone’s Liberty Global on the sale of cable systems to Vodafone, and made some digital investments of its own including digital sports destination The Athletic and Cal Ripken’s youth sports outfit Ripken Baseball.
Claire Atkinson, NBC News senior media editor, interviewed Bourkoff. The following is a condensed transcript of that interview.
Q: What are the big questions that media owners are going to be asking themselves in 2019? You mentioned this “profound evolutionary period” that we’re going to be entering, but media people always think they’re in the midst of big change.
A: I think 2019 will be governed by macro considerations including fear about the point of the cycle we’re in coming off the bull market, really changing the way we’re thinking about the market and valuation parameters, there’s going to be more focus on cash flow and valuation versus hope-and-dream business models.
It is good for traditional media as long as the business models can be defensible and relatively stable. It requires a real focus on having the right amount of capital to seize on opportunity, also having a business model that can be extended to the consumer directly versus the traditional affiliate model. It also requires having multiple buyers of its content.
I do think it still requires innovation. But yes, the more grounded approach to the market should benefit companies with attractive valuations.
Q: The big story is the streaming fight between Warner, Disney, Netflix, Amazon and Apple. How does that play out? If we have an economy that takes a downturn, people will go through their credit card statements and say “I’ve got 20 subscriptions and I’m paying $10 a month for all these things, let me get rid of a few.”
A: It’s a great question. We’re in a bit of a middle ground where a lot of companies in media have been making investments to transition their businesses to go direct-to-consumer to narrow the gap with Netflix, which has been a leader for many years and that will require investment and also investor appetite for greater risk profile.
That runs counter to the macro environment we’re coming into now. So the success rate will be judged on a much more short-term basis than their ability to be investing over the long term. Investors are going to want to see results sooner rather than later. It requires a much greater focus on execution and I think that applies to Disney as it gets into the direct-to-consumer model and ESPN.
It also applies to AT&T and Warner, and it also applies to Netflix and Amazon defending their lead.
Q: Who are the winners and losers going to be?
A: The winners will be those who survive the next cycle and make it through the other side. It will require a lot more blocking and tackling and a lot more accountability to investors. That’s really important, it’s not just going to be well-capitalized tech platforms that win.
The media companies in the ecosystem that are very much attuned to consumer behavior like gaming companies will be winners. But they’ll have to play through day-to-day, quarter-to-quarter and lean into the market trends and understand what investor appetite looks like.
Q: You have some fascinating charts about the debt markets and what they look like now versus the previous downturns. Can you talk about what higher interest rates do to the media economy?
A: I think Netflix is well capitalized but it will put pressure on incremental spending for content in a more competitive environment, but it also will give an advantage to companies that are purely content-driven, like a Discovery or a Viacom, that have good capital structures and the ability to finance themselves.
Q: Who wins? Big tech or old media?
A: Life is not black and white. You’ll see winners and losers among all parties.
Q: And you have a podcast...
A: We showcase some of our clients through Kindred Cast , and we talk about the things that matter to them the most and we talk about their goals and aspirations and how they’re grappling with this environment and the media industry. It’s a great way to showcase a longer-term narrative, not just short-term dealmaking. We’ve had former Secretary of State Madeleine Albright, Live Nation CEO Michael Rapino, former NBA Commissioner David Stern, AMC Networks President Josh Sapan and Dawn Ostroff from Spotify.
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My money would still be with Netflix and Amazon. They seem to come up with the best content, although I think that Hulu is not being talked up here enough. Handmaids Tale Castle Rock, The Looming Tower, The First, Brooklyn Nine Nite and 11/22/63 kind of makes it a major player.
Any thoughts you TV fans?
Personally, I think content is king, and those who deliver the content will be the winners.....
The broadcast advertising model is dying, just look at all the ad derived content we are seeing on broadcast/cable..... Reality TV? Most people I know are tuning it out.....
As soon as those paying for it realize they aren't getting the return they will bolt as soon as the next model come into being.... PPV is great but dead as a profit maker, subscription services are what is being touted as the next great iteration of entertainment delivery.
Netflix and amazon aren't going anywhere and I don't see them changing their delivery models just yet, the competition is going to be content, not creation, acquisition.
Who controls delivery of the content for distribution is going to own the entertainment markets in the next ten years.....
And it's going to be internet based.....
At least that is what I think Bourkoff is moving towards....
Haha. That is about all I watch. I don't watch so called regular shows. I will watch things like Big Brother and Survivor. Then the occasional documentary or nature show. I will watch GOT when it comes back.
Oddly what I do is turn on the tv yet barely pay attention to it. More or less background noise.
I agree, I think online is the future. More and more content is streamed.
I
Netflix and have been watching it come along with my support in the last five years with its increasing original shows. I have no idea how far this will go. So, is Hulu really a bargain for its services, or will I be just lured in to a free trial to be disappointed by the offering? I surely would like to know that one's selling point!
not a big tv watcher or fan, thus i have no intelligent input, so now you're saying "well, never seems to stop you from commenting on any and everything else", yea true,
but i salute you for attempting to keep the masses from murder, as that is where our leader has left this nation.
id prefer he actually "left this nation" but i've run off subject, again.
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I know not what shows any of these now household names carry,
I assume they have their own shows , and compete against each other and the established networks
but M only making an ass out of me
asz thats what i do here, and i doubt any would dispute as much, and if so, i might muster a mouthful, till i catch up, as i relish a good R guement
where do i redeem all those fancy new tickets ive gotten recently ? i want a big snugly cactus prize, that one in the back row
I watch very little TV so I don't have any input on this. My wife is addicted to one program on Netflix. I started watching it with her the other night and found it to be really funny. LOL, I can't even remember the name of it.
How does this play itself out?! My streaming services are limited for one major reason; I still have (no small feat contract) cable bundled services and Netflix (on Roku ). Recently, I have been offered extremely long free trial services (music and phone) and some of it is quite interesting. However, when does too much "distraction" become too many systems pulling at me and collecting my "data"? Color me: Leery of all the attention and honestly not knowing how to 'break up' with cable bungling! I can't deny that sometimes I feel these "freebies" and great 'happenings' everywhere mean these companies really care and. . .
What is funny is my ISP is from our cable company. The only choices are what I have or AT&T.
Even if everything was streamed, I would still have to go through my cable company to see any of it. The way they like to get you is with the bundles. If I went just for the internet service, the price for it jumps way up.
It is a constant struggle (mild headache) to carefully guard against redundant services too! I once did research on music, services, and shows offered on my television/internet communication/phone and Roku devices. I like a choice in different models for convenience—think reading books on the phone. From there, you get into Scribd, Kindle, Audible! There is a great deal of crossover out there*.
Absolutely, 'killing it' the providers are!
*Even Youtube is setting up a 'shop' for its music videos. Have you noticed that more and more of the online ones are spranging up around here as "video unavailable"? Yep! That's them reining it all in, in order to go in a different direction!