Aryeh Bourkoff is a banker at the nexus of dealmaking in the media, tech and telecoms businesses on a global scale, and he’s got a message for companies headed into 2019: Get ready to deliver those streaming subscribers, because investors are going to be a whole lot less forgiving if you don’t.
Bourkoff, founder and CEO of investment bank LionTree, said in an interview with NBC News that rising interest rates will affect the volume of dealmaking, and investors won’t be quite so tolerant of financial splurges by barely profitable companies.
This year, LionTree advised SurveyMonkey on its proposed IPO, worked with John Malone’s Liberty Global on the sale of cable systems to Vodafone, and made some digital investments of its own including digital sports destination The Athletic and Cal Ripken’s youth sports outfit Ripken Baseball.
Claire Atkinson, NBC News senior media editor, interviewed Bourkoff. The following is a condensed transcript of that interview.
Q: What are the big questions that media owners are going to be asking themselves in 2019? You mentioned this “profound evolutionary period” that we’re going to be entering, but media people always think they’re in the midst of big change.
A: I think 2019 will be governed by macro considerations including fear about the point of the cycle we’re in coming off the bull market, really changing the way we’re thinking about the market and valuation parameters, there’s going to be more focus on cash flow and valuation versus hope-and-dream business models.
It is good for traditional media as long as the business models can be defensible and relatively stable. It requires a real focus on having the right amount of capital to seize on opportunity, also having a business model that can be extended to the consumer directly versus the traditional affiliate model. It also requires having multiple buyers of its content.
I do think it still requires innovation. But yes, the more grounded approach to the market should benefit companies with attractive valuations.
Q: The big story is the streaming fight between Warner, Disney, Netflix, Amazon and Apple. How does that play out? If we have an economy that takes a downturn, people will go through their credit card statements and say “I’ve got 20 subscriptions and I’m paying $10 a month for all these things, let me get rid of a few.”
A: It’s a great question. We’re in a bit of a middle ground where a lot of companies in media have been making investments to transition their businesses to go direct-to-consumer to narrow the gap with Netflix, which has been a leader for many years and that will require investment and also investor appetite for greater risk profile.
That runs counter to the macro environment we’re coming into now. So the success rate will be judged on a much more short-term basis than their ability to be investing over the long term. Investors are going to want to see results sooner rather than later. It requires a much greater focus on execution and I think that applies to Disney as it gets into the direct-to-consumer model and ESPN.
It also applies to AT&T and Warner, and it also applies to Netflix and Amazon defending their lead.
Q: Who are the winners and losers going to be?
A: The winners will be those who survive the next cycle and make it through the other side. It will require a lot more blocking and tackling and a lot more accountability to investors. That’s really important, it’s not just going to be well-capitalized tech platforms that win.
The media companies in the ecosystem that are very much attuned to consumer behavior like gaming companies will be winners. But they’ll have to play through day-to-day, quarter-to-quarter and lean into the market trends and understand what investor appetite looks like.
Q: You have some fascinating charts about the debt markets and what they look like now versus the previous downturns. Can you talk about what higher interest rates do to the media economy?
A: I think Netflix is well capitalized but it will put pressure on incremental spending for content in a more competitive environment, but it also will give an advantage to companies that are purely content-driven, like a Discovery or a Viacom, that have good capital structures and the ability to finance themselves.
Q: Who wins? Big tech or old media?
A: Life is not black and white. You’ll see winners and losers among all parties.
Q: And you have a podcast...
A: We showcase some of our clients through Kindred Cast, and we talk about the things that matter to them the most and we talk about their goals and aspirations and how they’re grappling with this environment and the media industry. It’s a great way to showcase a longer-term narrative, not just short-term dealmaking. We’ve had former Secretary of State Madeleine Albright, Live Nation CEO Michael Rapino, former NBA Commissioner David Stern, AMC Networks President Josh Sapan and Dawn Ostroff from Spotify.