More Than Economics Drive The Quest For Scale

Michael Hedges September 8, 2022 Follow on Twitter

In many enterprises executives relish the dream of bigness. The big reward from bigness is, naturally, big money. This includes big bonuses for the executives and probably a few lawyers and accountants. Bigness also allows seeing off pesky competitors. What’s not to like?

A couple of years ago Thomas Rabe, chief executive of multinational publisher and broadcaster Bertelsmann Group and RTL Group articulated his dream of “national champions” - to fend off streaming disrupters Netflix, Disney, Amazon and a few others. Bertelsmann and RTL would merge, acquire and otherwise combine to create scale. At the same time, smaller operations would be shed. It would not happen overnight, he said, but the process had begun.

In the spring of 2020 Bertelsmann completed full acquisition of book publisher Penguin Random House, buying out minority shareholder Pearson. By the end of the year sights were set on publisher Simon & Schuster, offering Paramount Global more than US$2 billion. The official Bertelsmann statement at the time (November 25 2020) noted “strengthening global content businesses.” The US Department of Justice (DOJ) filed suit to block the acquisition citing issues with everything from scale - reducing the “big five” publishers to just four - to author compensation.

Earlier in that year Paramount Global, owner of ViacomCBS, laughed off a bid for Simon & Schuster from News Corporation, owner of trade publisher HarperCollins as well as the Wall Street Journal and Fox News. In August there were three weeks of lawyer arguments in New York after the Biden administration DOJ just sued everybody. A verdict is due this autumn but appeals could continue for years.

Also keeping the Bertelsmann/RTL Group lawyers busy is the French merger of TF1 Group, owned by industrial conglomerate Bouygues, and M6, the RTL Group French broadcasting company. TF1 Group operates five French TV channels plus a production house and ad sales house. For its part M6 operates six owned TV channels and operates several owned by Lagardère as well as three national radio channels. And, yes, there are production houses and ad sales houses involved. The merger was announced in May 2021 that negotiations had begun, set in stone that last July.

At first, official France welcomed the proposed merger as a first line of defence against big US streaming services. After recommending two TV channels be spun-off, media/telecom regulator Arcom waved the deal through. Cable operator Altice agreed to buy the TFX and 6ter TV channels conditioned on the merger’s successful completion.

Alas, there was a stumble. The French Competition Authority (ADCL) put a hold on it all in July, citing it was “not favorable” due to disruption in the advertising business. And so, executives of the respective companies paraded before the regulators this week (September 5 and 6) to make their pitch. That noticeably included a request that ADCL include internet audience penetration and advertising in its competitive calculation, bringing the dreaded Amazon, Apple, Facebook, Netflix, Disney and, even, TikTok into view.

Representatives from French advertising and independent producers also made their case. The consensus from French media watchers is not positive: the ADCL was not impressed. Further concessions from the merger partners - such as off-loading a bigger TV channel or untangling the ad sales houses from the deal - could be forthcoming in the expected October decision. Either of those outcomes might well end the merger altogether.

Conspicuously, there are several suitors who like nothing more than see the TF1/M6 deal collapse. Cable/satellite provider Canal+, principally owned by conglomerate Vivendi, somewhat mysteriously ended distribution of TF1 channels. Vivendi is in the midst of finding closure in its quest for the assets of Lagardère. But, several government ministers, who can overrule the ADCL, weighed in later in the week, reported business news portal Capital (September 7), saying they were “rather favorable” to the merger. Of course, it was noted, “no government has an interest making angry the media that broadcasts the most watched news in the country.”

See also...

• Hot Topics - Mergers and Acquisitions

• Hot Topics - Bertelsmann/RTL

• Hot Topics - Media in France