Aryeh Bourkoff: How Big Media Can Change the Narrative in 2021

Shari Redstone have him on speed dial. In our conversation, Borkoff talks about the profound effects of the pandemic and how it will shape the media and entertainment ecosystem for years to come. He gives his insights into the great direct to consumer realignment underway for traditional Hollywood giants, and he explains why his team at Lion Tree is closely

watching the video gaming world. Normally, people pay a lot of money for a half hour with Aria Borkoff, so consider this episode a perk and a good reason to listen to Strictly Business all year long. Area Borkoff, founder and CEO of Lion Try the elite media investment banking an advisory firm. Thank you so much for taking time out to join us. Thanks for having me. As we look to kick off the new year, what do you see what is the most significant things that you see

on the horizon for media companies to deal with? And that is a loaded question because there are about twenty thousand things that they have to deal with. But what do you think for the media giants that you work with and and study, what do you think are the biggest issues that are going to need to be addressed in Well, obviously a great open ended question to start, but it's, like you said, it is uh the question that the media cup but he has grappled with every day.

I always think about public companies and CEOs of public companies having to assess what their shareholders are going to be interested in UH and be demanding of them UM not only at the moment but in the future and UH and have to predict that UM and then obviously drive the company risk, appetite and investment horizons towards that shareholder base, media company strategies and the company executives have

to do the same thing for their consumers. And so the answer to your question is what does the consumer look like in the future By the end of twenty one. So we're sitting here beginning the year. What does the consumer appetite look like at the end of the year,

and how do you position your company for that? And so it very clearly has a lot to do with video streaming, and we've been we've been very much binging of video content and the creative um explosion of everything at the Disney Plus usen HBO Max and Apple TV and Discovery Plus and Amazon Prime and and everything around

the world that we're consuming all the time. But we've also been in consuming a lot more audio content like this right, and audio has been, in our view of, you know, growing a lot faster than even video and I think we'll continue to do so. And then there's gaming, um, and not not just video games as an activity, but video games as a metaverse, as a as a as a new universe. So is Fortnite the new Internet. And we saw in the last year Travis Scott premier a

concert within the Fortnite ecosystem. Maybe we'll start seeing movie premiers within the Internet of the within the video gaming ecosystem, or other concerts or other you know, activities that are more virtual. If you actually notice towards the end of last year with the pandemic, a lot of advertisements on

television were, um, we're animated or virtual. So you may not even really notice the difference over time that because of production issues around the pandemic, you didn't really have a chance a chance to see the video in person commercials being filmed or produced. So those were replaced by you know, C g I or animated commercials and most people didn't even notice it, but they were really appealing still. So that is a new way of doing things that

happened right before your eyes. And so I think it's really about predicting the future consuming patterns of the of the of all of us. And I think position for that. And I think savings has picked up a lot during this pandemic in because we've all saved a lot of money and comming to save a little bit of money and we haven't traveled and we're waiting to consume it inside the home and outside the home, and that will have to be balanced with all of our leisure activities.

That that could be one silver lining, because you know, the general statistics are pretty scary about how little Americans actually, you know, actually put in the bank, so so that that could you know that there could definitely be some

silver linings there. Do you think that UM Let me ask in terms of in terms of M and A, do you think there's been There has been a lot of activity, but there's also been a feeling that there is a there's a great roll up waiting to happen with some smaller companies, whether they're active in cable or active in content. Do you think that the pandemic conditions have made another wave of media M and A more likely or less likely in this coming say twelve to

twenty four months. I wouldn't draw a parallel between the pandemic and M and A activity, but I would draw a parallel between the market and financial stimulus and M and A activity, both in the sense of interest rates being low, capital being infused into the economy, of vaccine being a stimulant for a rebound economically and with jobs, innovation picking up, unemployment coming down, currency devaluation in the US UM and public market activity, So not just debt

financing being strong, but equity financing being strong, probably the strongest has been in my lifetime. UM, with not just SPACs but I p O S and other forms of equity capital, all providing for a framework of activity levels that will lead to not just consolidation in the way you're talking about it, which is a kind of scaling up, but also a deconstruction of companies where we're looking for

more of an opperable portfolio. So when you look at companies like A T and T or Viacom, CBS or any of the kind of conglomerates let's say, like the old I T T shared ins, where not every asset will be best situated in the same company structure, you can separate those more easily today in the public markets or with other strategic companies by realigning the asset mix.

Everything is available and there's a certain frenetic nature. I think the deal making coming that will be especially in the first half of the year with a recovery kind of embedded with some talents, I think it will be

maybe one of our busiest years. And I do think that that that that that like Sony is has has been breaking off small pieces, small collections of like you know Asian Asian TV channels that that that can be that were sought after by some investors that knew that business and have come in and I think that that aspect the fact that companies might be breaking off parts that people didn't even you know, previously, wouldn't have even thought would have been remotely for sale or would have

been either too small or to embed it into larger operations. But I think that having seen that, my senses that people feel like there's a lot of opportunity. But cything you like when you when you think about like deal flow and I think you know, I've had these conversations over the years, um and I appreciate our conversations because there's a narrative behind them versus like the deal of the moment that's breaking, which we of course never talked about.

You're always working on them, and you can never you can never tale, you can never talk about them, which is so funny. All most roads in media run through lion try and that is not an exaggeration. I appreciate that. But I I and I really love the deal and the execution of the deal, and we obviously spent a lot of time cultivating to make sure those deals happen.

But the narrative arc is is journalistically where we align because I find the story of what we're actually doing to be most interesting, and there's there has to be rational for these deals. So for example, hypothetically, let's say like regional sports networks kind of a troubled segment of the media world right now, right, I mean is a melting ice cube, like you know what, what's what's the

they're there in non demand streaming world. Correct, So so how do you so this is not like the high flying growth segment of you know, technology and digital and that other parts of the world you know, would talk about there's going public, but regional sports stutworks has to get reworked and maybe become less regional. Maybe they should become more natural nature. Maybe we should recreate a regional sports network that's super regional or national, which looks a

lot more like ESPN recultivated. Right, So that's M and A in a different way. And those are the kind of things that we think about a lot, which is, you know, how do you take segments of the media industry and reorient them towards a better narrative that has strategic value, that unlocks upside and minimize the downside to create a more defensible asset mix. And and that is uh, that's where we allign in terms of thinking about problems that have to get solved, not just deal making for

do making sake. Right? Do you what what what is the impression from investors, especially people that haven't been as active in the core entertainment media space. I would think that investors that would be looking at this space might be a little cautious, going, Wow, this business needs to reinvent itself, you know, unpack itself and you know, re fashion in different ways. I'm going to stay out for a few for a few years and let them figure

it out and then I'll come in. Or do you find that there is a lot of interest in a market that is going through a kind of a creative destruction right now? There's a there's a great book called The Powers that Be that you may have read, and it's like, uh, it's not a new book, but it goes through like some of the the origins of the media companies, and like, did you know that the beginnings of the uh, you know, the pay leeagus of the

CBS was a star company. Uh? And did you know that the beginnings of Time Warner was a car garage or funeral homes company? Can shoes right? Car garages? Yeah? And like these are great stories of entrepreneurialism well before the Amazons of the world, in the faithfic of the world and the Zugerberg's and the basis so that it's the delta, it's the change that's interesting to invest in. It's the reinvention that's interesting to invest in, not the static.

I always say stagnation leads to decay. Motion leads to value. So if you had the best company in the world that printed the same revenue every year, the way that equit markets work, the stock goes down because that equity trade is based on the future growth of a stock. So um, you have to have motion of growth and being able to reinvent more construction of value out of something then to keep it, even if it's a great company. So that creates a lot of reinvention and investment. Some

of that works, but that doesn't. But I think to invest in that risk, appetite and that reinvention is the whole game. And I think that's what's most interesting about the media industry. It's always reinventing itself. It has to m HM. And my sense from your comment is that there is a lot of money, there's a lot of quote dry powder out there waiting to find the place to park itself or put it, you know, to put

itself if there's dry powder. There are companies looking for a quote unquote third leg to the stool where they're looking for a new business to buy or to do invest in UM that in a lot of cases, like

I said, is audio or gaming driven UM. There are also companies are looking to expand in their core business in this data age, coming out of a pandemic, you look at your portfolio and say, how much do we have in our business that's out of home versus insulated in home because obviously had a premium for being insulated in home versus out of home like theme parks, etcetera. And should we reorient that a little bit we have more gaming in home versus theme parks out of home.

But you can't really react to a pandemic. In my mind, I always say, decisions that you make in a crisis probably are biased to the consider of side. And you really want to play a long term to a more normalized environment and not just have a diverse life set of assets, but an assets that that will grow to the consumer in all ways. Since as that gets back to your first question is how to media company position themselves. You want to have multiple products. You don't want to

just have video streaming all the time. You know, what else are you offering the consumer? You know, I don't. I do believe that people will come back to theaters. I do believe that there's an experiential model that people will long for in the In the time of the twenties, in the prohibition, we all long for a bottle of alcohol. In the time of the pandemic, we're all longing for a gathering. Let's face it. I mean, it's much more interesting to be together. That's like a creative spark to

be together. That we have to find safe ways to do that that are more forward leaning versus backward leaning. I don't think there's any activity that you can tell me about what happened in pre pandemic that didn't resume post pandemic. So things resumed, It just maybe accelerated towards its normal outcomes, and models will get reworked, and digitization is here to stay at our day and age, and

so we'll just accelerate that. In areas like education, which probably should have happened anyway, in healthcare, in e commerce, in mobile gaming, in other areas. That's great, But we're going to do those things, I think anyway, at a faster pace, and I think we should just get on board with that. I think that I have seen a lot of commentary in the last couple of weeks about looking at you know that nineteen eighteen. It was about a twenty four month period and then hello, what did

we enter what did this this America enter into? Was the literal the Roaring twenties, So you know, here's hoping bring back two percent needle beer. Also, the twenties is one analogy. The seventies is another analogy. And not not to be nostalgic, because I only say that because I think nineteen the late nineteen sixties, um, and I have to say I wasn't born then. Sixties seemed like it probably felt like a very heavy period of time. You had a war, you had the assassinations of MLK, JFK

and RFK all around the same time. Imagine how scary that must have felt. Um, And it's in the sciet and Democratic National Convention. Correct. So that was a very heavy period would emerge with a very gritty seventies lightness of being a creative um revolution that ended the decade

in the nineteen seventies and seventy seven. I think with Star Wars, a tale of morality of you know, good and evil and fantasy and sci fi and you know, and so I think that was like everyone got on board with this this beautiful like creative, like fantasy world that carried us for a while until like obviously the eighties, which was a high finance, you know world, and you know,

Reagan and everything else. So um and I just I just think there's maybe a potential of we're both in New York, like a grittiness of creative like uh, explosions of output of what the culture will look like coming

out of this. That's I'm really interested in that. From a media perspective, I wanted to talk about gaming because you mentioned you've mentioned gaming as a you know, as a force, and it's been interesting to me as long as I've been covering entertainment, gaming has always been just a little to the side of the core film and television, the core sort of Hollywood entertainment business. Do you ever do you see an activism Blizzard or anyone of the or an e A. Do you see ever a tighter,

a tighter consolidation with a traditional Hollywood company. We've seen it in Sony PlayStation, but as many times as they've tried, they've never I don't think you've ever really seen an integration of PlayStation technology and movie technology or television. They've tried it in different one offs, but never on a It's never like on a level that it really stuck. Is there something about the gaming business that is just sort of necessarily arms length from traditional film and TV? Yeah,

I think that that's changed. I think the way you describe gaming as sort of an activity or an application of a platform, I think is a thing of the past, and I think it's a matter of having gotten to the scale and the reach of the consumer um that we're now at today makes an activision more take two or an e a kind of simulate a Netflix like uh customer profile, and then once you have that same

kind of reach, then it's all about having the content. UH. And once you have that reach and the content, you can create the same kind of ecosystem where you have a subscription model with a with different types of content that's both you know, gaming as well as the video consumption Similarly, Netflix, with its reach and video content, can become more of a gaming platform. And I think you're gonna see those platforms kind of mailed closer together. And uh and I think that's where I say gaming is

more of the new Internet. It's more of a platform that will have video not just games inside, because it will be a way of doing things virtually. Then that that that is kind of generational, um, but completely now part of the mainstream than when I grew up, at least, where it was more of an activity. And uh and I think that Uh. I talk a lot about that

in the letter because it's really it's a metaverse. Uh. And we strongly believe that we've invested a lot in not just our gaming advisory and banking franchise and advising companies, but also in investing and the growth companies pre I, p O and pre Eminent, because I think there are social networks to gaming, like the discords and the roadblocks of the world. Um. So it's not just the consoles, uh,

it's and the scope leaves of the world. So we're very active in the gaming business, even even the ones that't a private mm hmm. Fortnite is as much a competitor to Netflix as Amazon and Hulu for both time and also, as you said, just purely from a streaming platform, it will if there was a movie studio for sale, I would bet on a gaming company looking to buy it as much as a media company looking to buy it or technology platform. Is the era of the bundle over?

Has streaming? Has streaming made the traditional notion of the the m v PD cable bundle that drove twenty five years of earnings for the largest media companies? Is that bundle? Is that bundle praying to the point of not being able to really be be put back together within like a couple of years, or do you think that that that that the impact of streaming has been maybe a little overstated on the on the content companies. Um I,

I definitely think we're in an ali card world. Um I don't think that's being widely acknowledged, but it certainly is an ali card world, which, like anything direct consumer or digital, has risk of pricing coming lower for the content companies unless packaged in a different way. So when you see Disney Plus have proprietary exclusive content on its own platform, that's another form of bundle, just bundle in its own ecosystem right or Warner with HBO Max that's

its own bundle. Right, it's just bundle at the exclusion

of other content. Um. And over time the next stage of that development will be the platform players will either have proprietary content that they own on their platform and that's it in a closed in a closed garden, or they will open it and least other content, which will give power to the platform long term with the biggest reach versus UH content that's not owned by those platforms, and the content that's not owned by the platform will be leased by by many platforms, and the long term

power will be in the distribution. Of my mind, what do you think is the runway to profitability, for true profitability for a Disney Plus or an HBO Max, given you know what they compared to what they would have been able to earn, say five years ago, in a

more stable traditional m v p D environment. You're you're really getting to the question of as a traditional model between content and distribution with the cable operators or the satellite operators breaks down in a bundle format and the content companies go direct to consumer, is their value leakage UM, that's a much better way to say it. We live this every day. It was the economics. They gotta break to the point where maybe it looks sexy in these

business models. Uh, director consumer around the whole plus side of what these companies are going, but it really doesn't hold up financially long term to a shareholder. So the answer to that question is, um, there's definitely economic risk to the content companies as they abandoned the cable companies and go direct to the consumer unless two things happen. One, they have enough global scale to make up for the regional ecosystem that the cable operators owned, because the cable

operators are really super regional. You know, there's no real national cable operators still, right. We have many in the U S still two, three or four, but not a national player. So if you could have global reach and Disney can reach a global customer base like Netflix, then you can become a global channel and make up some of those economics um and maybe even super seats on

those economics with a loyal consumer base too. You have to have an investment in content that continues over time, that allows the consumer to stay with your platform and allows Disney, as this example, how to have pricing power over that consumer because you have to keep raising prices um. That will want the consumer to feel like they're getting more value for that for that subscriber, for that subscriber cost. And then three, you have to bring the capable operators

along with you. You you really, you really have to in order to to not cannibalize your existing business. You have to bring them along with you. That that potentially could be done in in the revenue splits or working with the cable operators in different digital ways. And that's gonna be important. By and large, we're talking about the have and have not. The Disney of the world is a scale player. The other content companies may not be

able to do that. Discovery could do that, um, but they're very few content companies that can actually have a global reach of the consumer. So as the bundle breaks, it definitely hurts the content industry overall, except for the top players, which must must yield more consolidation among the content companies to have more power and breath around the global consumer base or have alignment with other platforms like

technology platforms. Long term, if Disney, since Disney has put those numbers out there, Disney put out Um, I believe that they're aiming for as many as two thirty to sixty million subscribers to Disney Plus long term. If they get within that range internationally, they will not miss the seven dollars a month that they were getting per sub in the old world. For ESPN like that, the business

model is strong. And if they reach that scale, in your in your view and I know you your folks study this all day long, that they if they reach that scale, that they will be that they will be even better off than they were in the glory days of let's call it, you know, ten, ten, twelve years ago in the cable business. Yes, as long as those customers hold. Because there's a concept around any consumer business

that's called churn. And then there's another concept called price lasticity, which means, you know, what is the price that you could you know, raise your rates at without risking turn And um, that is a hallmark of any distribution model, whether it's a wireless model or a cable model, or a satellite model or a you know, five G model. UM, we've always had to measure these things over time, and so pricing is not you know, in elastic you know, you have to really look at what you're offering the

consumer to be able to raise prices. If you're in a broadbad environment, that's about speeding capacity and access, you have to be able to raise prices. If you're in a video environment, you have to give them more content, and you have to give them more offerings, or maybe you have to offer more than this video, like I said, gaming and audio or other things, more products and services.

So you have to spend to offer more. That's what Netflix has been doing, and so you have to reach a point of critical maths to be able to have that marginal costs to spend affordable on the platform. And that's only going to be there for very few players. Everyone else will have to align with other platforms or merge with other platforms to create ecosystem of five or

six or seven global competitors. Everyone else will be part of that, and that's a new ecosystem that basically similarly it's the old cable model we've been talking about, very traditional Hollywood. There's a lot going there's a lot in the ether right now about big tech and a lot of you know, there's a lot of talk about the threat of regulation of antitrust concerns and even bringing breaking up Facebook's Googles, you know, the dominant duopolis in the market.

Do you see a do you think that there isn't is a real threat of of of there will be a lot of noise about regulatory activity, but do you think that there's a real head of steam to put regulations around things like Facebook and or or UM. You know, Google is under a lot of antitrust and you know,

market scrutiny right now for various various operations. Do you think that, especially with the Biden administration coming in, that we will see actually real activity on the regulatory front, beyond beyond hearings and you know, noise, that there will be actual action. I think that Google and Facebook will be regulated UM. I don't think Google and Facebook will be forced to break up the regulations. When I say regulated,

I mean there's things like Section two thirty. I think that there is UM elements of restrictions on UM, the privacy rules and the way that their different divisions work together. I think there's certainly glacier already coming out of the EU, even more stringent than in the US. UM. But by and large, I think these companies have been very innovative and should not be penalized by virtue just being innovative

platforms UM, you know. And I don't think that any of them are too big for this environment because I think the access to capital for other companies are available to try to to be built as well and UM. And I think that the way that the FTC, which really regulates Facebook and Amazon, the way that the d o J, which really read grades Amazon, UM sorry, Google

and Apple approaches that will be very different. Uh. And I think that the FTC has moved faster with the Facebook lawsuit UM at this point, but I think over the next few years UM, we will see much more kind of headline noise than any kind of risk of breakups.

But I think there is a real need for regulation around replicating what traditional media has had to deal with, which is like what you can say, what you can't say UM, and that should approach some kind of UM standard with social networks as well as traditional media networks. That should be some sort of consistency there that I think you'll see the next few years. How the democratic administrations deal with M and A and tech UM remains

to be seen. I mean that also kind of goes into materiality these companies are so big, whether they buy something that actually gets to a point of a shareholder vote or a regulauthority vote remains to be seen because a lot of these transactions are too small to even get to the kind of scrutiny. Um but um, but certainly democratic institutions and administrations tracially speaking are more more cautious with respect to M and A and will have to be uh cognizant that that's a big rispect for

all of us. Do you think that the that the that the sense of you know that there's going to be some governmental active the around big tech. Has that made media a little more attractive for investors? That there's there's big issues that big tech is going to have to deal with. Is that is that making media look a little more attractive? I mean, yes, that in the sense of media is not in in the ire of the regulators, But no in the sense of if we're

expecting media to be acquired by the tech companies. So um um. I think it's an intertwined ecosystem at this point. Um. And I think there's a lot of power that that the tech companies have in terms of the reach of the consumer UM, but there's a lot of UM. There's a lot of respect the media commis should get in terms of being able to really produce great content. And I think the relationship with the talent it's hard to replicate UM, but but ultimately we'll have to be aligned

with the platforms. I think they getting the alignment between the content production, the talent, and the innovation with these

economic models is where the complexity sits. The the I was saying to you earlier that UM, the relationship between talent and economic models and innovation in the media industry is so nuanced and has to be respected in a way that's not like any other industry where you can just innovate your way through economic models and say we're now going digital, we're going to e commerce, and all just makes sense because talent has a lot of power in this ecosystem that we live in, and they shouldn't

have a lot of power because the brands or the creative engine that makes media special UM has casual streams attached to them. They're not just UM. You know, voices are artists. They have casual streams and maybe they have

more power than the corporations. A lot of ways and if you disenfranchise the talent, you kind of lose the engine of what makes the immediate strey special, so that that relationship has to get cultivated in a similar way as that, you know, content and distribution has found its harmony and marriage and a trictional cable and cable network ecosystem are a What is your boldest prediction for Well, it's a great question because everything about this industry has

an element of boldness to it. But let me see if I could, um stretch my thinking for your podcast a little bit, um for I'll do for plus in the vein of of the letter and how we're thinking about things. So the branding of the industry, Yeah, exactly, Um so a few things. Music concerts and festivals will come back faster than movies from your lips. The sports industry will be completely realigned and adjusted. In the Buffalo

Bills will win the Super Bowl good defense. A major university will go digital as a long term strategy to expand its reach and innovation fully virtual, Intriguing people are going to travel to space, and tourism of all kinds will take off in the coming year. And the next US president will be a woman. Finally, Wow, all exciting things to look forward to in plus Aria, Thank you so much for your time. Always a fascinating conversation with you.

Thanks so much, Cynthia, have a great time. Thanks for listening. Be sure to tune in next week for another episode of Strictly Business, and please leave us a review at Apple Podcasts. We love to hear from listeners.