SPE CEO Says Media Consolidation ‘Very Unlikely’ in Near-Term

Despite Hollywood executives long warning that the entertainment industry is ripe for consolidation, Sony Pictures Entertainment CEO Ravi Ahuja believes its “very unlikely” to happen in the near-term.

“I think there’ll be a little bit of deconsolidation and consolidation. I think there could be a little bit. I don’t think there’ll be a ton of it,” the executive told an investor conference hosted by Bank of America on Thursday. “I don’t think that we’ll go down to three companies the way music did. I don’t think that happens in video. I think it’s too varied and the companies are too large. So I think that’s very unlikely in the near term. Who knows in the very long term?”

When asked about Sony Pictures Entertainment’s M&A strategy specifically, Ahuja said he doesn’t think the studio will be sold, calling it an “integral part to the machinery” of the Japanese multinational conglomerate.

As for being an acquirer, he said it depends on the deal, but noted he’s “very wary of scale for its own sake.” Last year, SPE notably teamed up with Apollo Global Management on a $26 billion bid for Paramount Global. However, a deal would not end up materializing and Paramount was acquired by David Ellison’s Skydance Media instead for $8 billion.

“If you look back at the deals that have been done in the last 30 years, there are very few of those large scale deals that have worked well. I think the deals that have tended to work well are the ones like Disney buying Marvel, buying Lucasfilm, buying Pixar. Bolt-on deals that fit well with the system that you have work incredibly well,” Ahuja said. “But Fox and Disney coming together, Warner and Discovery, Warner and AT&T, Warner and AOL, Warner and Time Inc, these deals are very hard to execute. These are complex businesses with multiple business units that deal with each other and it becomes so complicated. The quote I use all the time, it’s attributed to David Packard, is more businesses die of indigestion than starvation. It’s completely true. If you’re just stuck internally negotiating with each other, you can’t do a great job in the marketplace.”

At the same time, Ahuja emphasized Sony is “very interested in IP” and “capabilities that can enhance our existing sense of assets,” such as its acquisition of Alamo Drafthouse.

“I think focus always beats scale. And I think the idea of just merging with other companies because you can have more market share in our business is very dangerous,” he added. “These aren’t factories. I think making great content requires focused teams and I think if they sit in HR meetings about laying people off constantly, they’re not very creative. I don’t think that economies of scale work in the media business very well.”

When asked about consolidation amongst streaming services, Ahuja expressed similar skepticism.

“Maybe one or two will consolidate, but if there are seven or eight general entertainment streaming services, I don’t see that going down to three or four. I really don’t. I think a lot of the companies that own streaming services are quite strong and I don’t see them not doing it,” he said. “Maybe they become more focused and more programmed, but I don’t think they’ll go away meaningfully.”

He believes that more and more services will continue to bundle their content together.

“I do think that the platforms will continue to be successful with the channel bundles they create. Amazon’s probably the farthest ahead. We with Crunchyroll, have a lot of subscribers through Amazon’s channels program. So I think that’ll become more and more attractive to streaming services,” Ahuja said. “For streaming services, the trade off is you don’t have as much of a direct consumer relationship. It’s almost like a return in the cable model. But that’s a more efficient model. So I think that’s where it goes. But the whole challenge in the business is the cost side of it, which is very hard to manage.”