Media Urge to Merge Could Mean Business for Investment Bankers

L ike a Dalmatian hearing the firehouse bell, Mickey the obnoxious Hollywood agent leaps out of retirement to advise a key powerbroker how best to profit from the tectonic personnel shifts that are reshaping the media world.

TO: Herb Allen/Allen & Co.

EX: Mickey the Agent

RE: The Sun Valley Also Rises

Hey, Herbie! So sorry to have missed your Sun Valley media bash. Guess my invitation got lost in the mail. Just as well--the Gulfstream I normally hop was in the shop and I get airsick flying anything smaller. . . .

No question, you’ve made Sun Valley the best place to do deals since Drexel Burnham’s Predator’s Ball. (Now, those were the days.) There’s nowhere in the world that Mikey Eisner, Tommy Murphy and Warren Buffet could have so quickly agreed to marry Disney and Cap Cities/ABC. You certainly know how to create critical mass of media moguls. You know those red-suspender boys at Lazard Freres and Morgan Stanley are eating their hearts out. Bon appetit! Right, Herbie?

But it gets even better, doesn’t it? With Mikey--aka Super-Agent--Ovitz loping off to Disney, you’ve pulled off a tricky but superb three-cushion carom. One of your biggest rivals has been neutralized even as you’ve lit the fuse for a new round of mega-media deal making. I’m impressed.

It’s no secret that the tension between investment bankers and the talent agencies has been increasing over the past decade of multibillion-dollar multimedia mergers. Agencies like Ovitz’s CAA and Berg’s ICM have been trying to broker deals as well as talent, so they’re stomping their Guccis on Wall Street’s turf.

At the same time, the bankers are always looking for opportunities to turn talent into marketable equity. Between the ongoing deregulation of broadcasting, cable and telecommunications, the business opportunities created by digital technologies and the appetites of the Baby Bells, it’s clear that both the bankers and the agents see the same opportunities for big deals.

With the defections of Ovitz and Ronnie Meyer, it’s now obvious to talent that maybe their agents aren’t such “honest brokers” after all. Maybe their agents and agencies are really thinking about being on the other side of the negotiating table. Just as important, all those deep-pocket Baby Bells and publishing houses are going to be just a little bit warier about using the talent agencies as their New Media Sherpas. All those conflicts of interest are going to finally come home to roost.

So who are these aspiring media giants going to turn to? Why, you, of course, Herbie! The balance of brokering power is going to swing back to the investment bankers who have successfully resisted the temptation to either become principals or go Hollywood. Smart!

Indeed, the sheer scale of the Disney/ABC operation--placed alongside Time Warner, Viacom, Sony/Columbia and Murdoch/MCI--is forcing every media company with an inferiority complex to reconsider the importance of corporate size and scope. Big media companies make big media deals. Or they decide to spin off or sell non-core media businesses. Either way, this new environment breeds better business for bankers like you.

It’s going to be a lot easier for the Allen & Cos.--investment banks with a tradition of corporate client service in media--to create the sort of whispering campaigns that keep those parvenu-but-aspiring talent agencies out of the corporate boardrooms at M&A; time.

But, Herbie, I’m a little concerned that you’re not aggressive enough in taking advantage of the opportunities. Media companies all over the world are looking at the media consolidation in the United States and are getting worried that they may be too puny to be major players in the global media markets. And yet, you didn’t have that many international companies represented in Sun Valley.

Herbie, Herbie, Herbie--the dollar is weak; the foreigners--Japan’s unhappy experiences notwithstanding--are nervous. Don’t you think there are big deals to be done with the Bertlesmanns, the Reed-Elseviers and the Singapore Telecoms here in the U.S. market? Big deals in America inevitably fuel big deals globally. I’m a little surprised you haven’t been more active in cultivating the overseas market. That was something Ovitz certainly did well, but now he’s gone.

And, in light of Netscape’s recent $2.5-billion valuation, don’t you think that Allen & Co. and the rest of the investment banks need to do a better job of keeping in touch with the venture capital community? After all, look at the media companies like Hearst and Times Mirror that had a piece of Netscape: 10% of $2.5 billion is real money even for a Fortune 100 company.

Not every start-up is a Netscape, of course--but an Allen & Co. is beautifully positioned to advise the media giants on crafting new-media venture portfolios. You know how to structure mezzanine financings and the like; it makes sense to position yourself as bankers who can advise the Netscapes as assiduously as you advise, say, the Coca-Colas.

In fact, new-media acquisitions are inevitably going to be a part of this urge to merge. If Microsoft kicks in a couple of billion to buy a piece of Teddy Turner, you ought to point Mikey Eisner to a company like, say, Broderbund or Electronic Arts to let billg@microsoft.com know that he doesn’t get to own the PC at home without a fight. That might also get the attention of the three amigos at DreamWorks SKG as well. They’re great clients, aren’t they?

Let’s talk about it next week. Whoops--gotta hop. . . . I’ve got Rupert on the other line. . . . Something about whether he can get dual Chinese-Indian citizenship and still be an American-Australian.