Last Updated Nov 2, 2009 12:03 PM EST
UBS (UBS) has assembled a list of potential targets for media acquisitions or partnerships. It is topped by DirecTV (DTV), DreamWorks (DWA), Take Two Interactive (TTWO), Netflix (NFLX), Scripps Networks (SNI), Discovery Communications (DISCK), Lionsgate (LGF), Sony Pictures Entertainment (SNE), video gamer THQ (THQ) and ValueClick (VCLK).
There also could be a scramble for Yahoo (YHOO) and AOL, which are rebuilding as online content hubs luring traditional newspaper and television advertisers. They are scarce, good-sized publicly traded Internet companies that will be hotly pursued in better times.
Other deal catalysts will be the need for industry consolidation, eliminating costly legacy, and private equity exits from investments. An improving economy will foster an "eat or be eaten" mentality, says UBS analyst Matthieu Coppet.
Momentum already is being provided by Walt Disney's (DIS) pending $4 billion acquisition of Marvel Entertainment (MVL) and Comcast's (CMSCA) proposal to acquire majority ownership of NBC Universal in a deal valued at $35 billion.
There is excess cash on many corporate balance sheets and public companies trading at attractive low multiples. Microsoft (MSFT) could tap its $31 billion in cash to acquire search engine Ask.com from InterActive Corp. (IAC) even as it waits to assume management of Yahoo's search operations. Microsoft also could seek an alliance with AOL. Such moves would make the combined companies more competitive to Google (GOOG) in search, advertising and content.
Google has pledged to use its $16 billion war chest to acquire as many as one dozen smaller companies (around $100 million each) in the next year. Other potential acquirers identified by UBS with between $6 billion and $3 billion in cash include News Corp., (NWS) Time Warner (TWX), DirecTV, Amazon (AMZN), Verizon (VZ), eBay (EBAY) and AT&T (T).
The extensive UBS report skims over what could be another deal driver: the collapse of more newspaper and broadcast companies devastated by the recession and the continued shift of consumers and advertisers to digital platforms. "The clock is ticking as structural pressure remains," Coppet observes without naming names.
CBS (CBS) is a potential acquisition or partnership target missing from the list. CBS' $1.8 billion acquisition of CNET in 2008 has improved its competitive Web presence. CBS could seek to align with or acquire the likes of Yahoo or AOL to further bolster its online content and advertising, although none of the companies have suggested any such intention. (Full disclosure: BNET is owned by CBS.)
Coppet analyzes some 4,000 media-related transactions of the past two decades (most of them valued below $100 million) to provide context for what is to come.
How fast can new business models alter media ranks? In 2003, Time Warner (without its recently spun-off cable systems) had the highest operating cash flow (earnings before interest, taxes, depreciation, amortization and after capital spending), followed by Comcast and Google. Today, the order of companies has been dramatically inverted, he said.
Time Warner's AOL, which will become a standalone company by mid-December, holds the record for greatest value destruction. AOL was valued at $161 billion when it merged with Time Warner in 2000. AOL's estimated worth plummeted to $20 billion in 2005 when Google paid $1 billion for a five percent stake. Today, analysts estimate AOL is worth between $4 billion and $5 billion.