A24 for $3 Billion? It Makes No Sense — Until You Remember Who Theyre Dealing With

A24 has a scrappy vibe, edgy tastes, and is often cited as the standard bearer of a 21st century indie film studio (much to their competitors’ annoyance). Rumors of a possible sale have trailed the distributor for months, including tire kicking by  Apple; in 2018, Apple and A24 made a nonexclusive “multiyear deal” for a slate of films.

However, when Variety reported that the eight-year-old A24 was exploring a sale, with Apple expressing interest, the price tag was a shock: $2.5 billion-$3 billion? For an eight-year-old company and its biggest hit is “Hereditary”? (It grossed $80 million worldwide.) Understanding how that could be possible says more about the chaotic state of the entertainment industry, and its new-Hollywood tech overlords, than it does about the company itself.

Consolidation is hot. Amazon will pay $8.45 billion for MGM. Apple reportedly is considering the acquisition of Reese Witherspoon’s Hello Sunshine production company (“The Morning Show,” “Big Little Lies”) for up to $1 billion. Discovery and WarnerMedia are soon to be united in an effort to beef up their streaming clout. ViacomCBS and Roku are reportedly possible targets for an acquisition by Comcast.

These are crazy numbers — or are they? For companies like Apple ($2.43 trillion market cap) and Amazon ($1.89 trillion market cap), money is literally no object. As one agent pointed out, “For a tech company, what’s the difference between $1 billion and $3 billion?”

There’s also the simple matter of supply and demand. The entertainment industry stares down a world in which streaming scale seems to mean more than anything, and there’s few well-established high-quality companies left for the taking. It costs a lot of money to compete with Disney’s established franchises, Netflix’s huge subscriber base, and Amazon’s seemingly limitless funds. And, as we’ve seen with real estate across the U.S., those factors create a white-hot market with its own pricing metrics.

Considering those circumstances, $3 billion for A24 might seem like a comparative bargain. Or, this could be A24’s version of the Zillow feature Make Me Move: Ask for the highest price and see what happens.

“It’s like buying a really premium property in LA. You’re ideally going to find a nice, comfortable place for your family and in the best of situations you’re going to watch the value of that going up just as you live in it,” said Jimmy Schaeffler, CEO of media consultancy the Carmel Group.

It costs a lot of money to compete with Disney’s established franchises, Netflix’s huge subscriber base, and Amazon’s seemingly limitless funds. Here, A24’s brand is the franchise. “Smart studio executives look for trends, and try to capitalize investments on those changes,” Schaeffler said, one of those changes being the accelerated adoption of streaming.

“Like so many properties, if a big studio or a tech company invests big in an A24 today, there’s a greater likelihood that they not only will receive the value of the actual content, but also the greater likelihood on the macro level of an asset whose overall value has increased remarkably,” he said. “I’d be surprised to not see a more-than-usual stream of these types of acquisitions in the time between now and year-end 2021.”

To consider how quickly things have changed, Amazon was slammed in the press for the atrocious box-office performance of its major 2019 Sundance Film Festival acquisitions like “Late Night.” Studio chief Jennifer Salke batted away criticism, maintaining that the titles were a hit on Prime Video and that’s what drove her bidding. At the time, her logic sounded more like a we’re-huge-in Japan justification; today, Disney describes theaters as “a legacy platform.” Streaming drives the business. (Salke doubled down on her assessment earlier this year, describing theatrical releases as filmmaker appeasement.)

With the MGM deal, Amazon eyes the studio’s “treasure trove of IP” and a “deep catalog that we plan to reimagine.” Meantime, MGM chairman Michael De Luca described the studio’s recent projects with Paul Thomas Anderson and Ridley Scott as examples of “treating the filmmakers like the franchise.”

That might well apply to A24 as well. It earned its first Best Picture win with Barry Jenkins’ 2016 drama “Moonlight.” Ari Aster gave the company its biggest box-office hit with “Hereditary;” two years later, the distributor gave fans more of what they wanted with Aster’s sophomore effort, “Midsommar.”

Apple, like A24, is a company whose success is based in loyalty and recognition for its quality products. Devotion to the brand prompted headlines like “Inside the A24 phenomenon: How an indie film company became a major lifestyle brand,” and “Did A24 save horror?” A24’s greatest asset is its anti-Marvel brand — something that, in this moment, could be worth $3 billion to the right buyer.

 

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