Two blockbuster media deals in announced in May — the WarnerMedia-Discovery merger and Amazon’s $8.45 billion acquisition of MGM — was as clear a sign as any that Hollywood’s next chapter would be defined by big streamers spending big to get even bigger — and, presumably, choking out the competition. Now meet its corollary: A new company led by former Disney execs Kevin Mayer and Tom Staggs announced it would acquire a majority stake in Reese Witherspoon’s Hello Sunshine — not with an eye toward building a streaming service, but as the cornerstone of a plan to become a streaming-content powerhouse.
The $900 million price tag for Witherspoon’s company sounds insane by Hollywood standards, and it is: That valuation comes from the tech industry, not from studio comps. More importantly, as box-office and Nielsen impact declines as a metric of clout, the Blackstone-backed deal shows there’s room for major TV and movie producers to cash in on the chaos of the moment. In the future Hollywood, streamers won’t hold every iota of power.
“There’s a window in time in which the public markets are affording tremendous windfalls that likely won’t be around in five years because of consolidation,” said Eric Schiffer, chairman and CEO of private equity firm Patriarch Organization. “The message is there’s a giant pot of gold that will get divvied up, and that valuation is going to be in excess of what the norm would be historically because of the technology valuation multiples and this inflection point in how consumers globally get their entertainment.”
At Mayer and Staggs’ still-unnamed holding company, the pot of gold currently represents about $2 billion. Also rumored to be in the Blackstone acquisition crosshairs are LeBron James and Maverick Carter’s SpringHill as well as Brian Grazer and Ron Howard’s Imagine Entertainment.
“Godzilla vs. Kong” producer Legendary Entertainment and A24 are other independents rumored to be exploring a sale, while ViacomCBS and Roku are reportedly possible targets for an acquisition by Comcast. MGM peer Lionsgate is widely viewed as another obvious target for a merger or acquisition.
As acquisitions create new companies, old-school Hollywood is increasingly mired in growing pains. Scarlett Johansson responded with a lawsuit after Disney opted to go day-and-date with “Black Widow,” alleging the move allowed Disney to exploit the film’s value while bilking her for millions in the form of expected back-end compensation.
That kerfuffle is a direct result of Disney’s own effort to reshape its own infrastructure for the streaming-first world. Since October, Disney has directed a team of numbers-first executives to determine which distribution methods are best for the company’s bottom line for each of its productions. Increasingly, that means streaming, which often means less money for talent whose reps are still unsure of how much a given project is worth on streaming. Under Mayer and Staggs’ arms-dealer model, Hello Sunshine and its future corporate siblings could retain negotiating power by selling their projects to the highest streaming bidder, rather than on a work-for-hire basis.
“All of this is really about how are creators and IP originators going to be paid in the future,” said a senior streaming executive who requested anonymity. “I think what is compelling is the ones that are going to make the most money are the Reese Witherspoons who are smart, and they control the creation of those assets, rather than work for others to create those assets.”
Among Hollywood’s legacy studios, the only streaming holdout is Sony, which has opted to supply the likes of Netflix and Disney with its films after they leave theaters, as well as produce films for Netflix.
Windfalls for second-tier production companies are unlikely. Hello Sunshine’s valuation is tied directly to its track record of producing Emmy-winning adaptations like “Big Little Lies,” the HBO limited series so successful it spawned a second season, and “The Morning Show,” which served as a centerpiece of the launch of Apple TV+. The price tag, according to Staggs, also comes from Witherspoon and Hello Sunshine CEO Sarah Harden’s business savvy, as well as the company’s potential to produce ancillary revenue.
“We can build social- and commerce-driven businesses around Reese’s Book Club,” a digital content hub, he told Variety. “This is the crux of the forward-looking company that we’re trying to build.”