Apollo Exec Reveals Strategy Behind Tegna, Legendary Buys, Future M&A
Apollo Global Management on Tuesday said it would be part of a deal to acquire TV and radio station group Tegna for $5.4 billion alongside another private equity firm, Standard General. Tegna has 64 stations and is the biggest independent owner of NBC affiliates.
Last month, Apollo jumped again into the traditionally risky Hollywood film and TV production business acquiring a minority stake in "Dune," producer Legendary Entertainment for $760 million.
Among other past entertainment investments, it previously held a controlling stake in Charter Communications and 50% of "Keeping Up With the Kardashians" producer Endemol Shine (Apollo and co-owner Disney sold the company in 2019).
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The Legendary investment comes soon after Apollo snapped up station group Cox Enterprises, which has 57 stations, and spent $5 billion to acquire Verizon's AOL and Yahoo.
Aaron Sobel, a partner at Apollo and now a Legendary board member, talked to Insider about why he sees value in content production and what the private equity sector has its eye on next. Perhaps CBS?
This interview was edited for clarity and conducted ahead of Apollo's Tegna deal announcement.
What's the rationale for acquiring Hollywood producer Legendary?
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We've had a long history in media. We've been around 32 years.
It's pretty clear there aren't going to be seven subscription VOD platforms in the next five to 10 years. They're all fighting over survival and you have a lot of very big media companies like Netflix that aren't going away, but the entire market isn't going to win. So you go down the list, Discovery with HBO Max, Paramount, Peacock, Amazon, Apple … everyone's figuring out how much of the ecosystem they're going to get and there's going to be a lot of consolidation. There's clearly going to be a very big shift.
There's so much money being spent on content right now. We've been trying to figure out how to play this thesis and obviously we're not going to be a big over-the-top platform. We've been hunting for something that is a good asset, has strong cash flow, but at the same time is extremely exposed to all this secular growth in media.
And so why Legendary?
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What makes them unique is that they make money three ways. They have a big library, with billions of dollars of value that they've generated by doing movies with Warner Bros. and Universal. There's cashflow embedded in all these movies, so that helps fund the business.
They [also] make money by making TV shows. The whole industry has moved to a "cost plus" model, so if I make a movie for Netflix, I make a 15 to 20 percent margin. When we would make a TV show for Fox in the US we might even lose money but we'd own all the international rights and the IP outside the US. Now Netflix owns it all.
We've been very focused on whether we could get into the production business in a way that would create value.
We also make money through "terminal value," we own it. [Terminal value is the value of an asset beyond a set period.] Another way to invest in media is talent. Our firm supports people who are making movies and shows as opposed to being in movies and shows. Legendary is about us making our own IP.
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What else are you going to do with Legendary? CEO Joshua Grode told Variety there would be more M&A.
Across the globe, the streamers haven't really penetrated. Netflix growth has to come internationally. A lot of countries have rules like France, where you have to produce a certain amount of content in a country; you have to have production companies in all these countries.
You are going to be seeing us do M&A and there's much more that's going to happen. Take Viacom [now named Paramount] and CBS: I have no view on whether it is going to be combined with Comcast — but Comcast would have to sell one of the broadcast networks, or they would have to sell one of their studios.
[Comcast owns NBC and Universal; Paramount owns CBS and Paramount Pictures.]
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As you think about the puzzle pieces, there are lots of people thinking about this in the industry, it's going to force a lot of things out. I think we will be a very good platform to ultimately acquire whatever comes out.
Legendary is partly owned by China's Dalian Wanda Group. How will the relationship with China be of help to you?
When people quote box office numbers, China is so big. It's the third-largest market [for US exports], so as we grow movies, being able to take advantage of the Chinese market is something we are very bullish on. The fact you have a joint venture in Asia allows you to bring more movies than [the quota] permitted by the Chinese government, because the Chinese have an ownership stake. It's clearly a growth avenue.
Do you see ways to create advantages for Apollo's other media sector assets in tandem with Legendary?
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We obviously own Yahoo and Cox. We have 32 television stations and Legendary makes TV shows. [Tegna owns 64 stations.]
Why can't those shows be distributed on our TV stations where we don't have news and sports? Yahoo's distribution is massive, they are one of the most-viewed websites in the world. There's got to be stuff we can do. We've talked about some really creative ways even for brand placement.
We own consumer products. Is there a way for some of those consumer products in movies to draw value? I think with our ecosystem we can build additional businesses on top.
Is there a way to create a consumer product and have it be advertised on Cox and have it show up in product placement in a Legendary movie and have it on a shelf at Fresh Market, which is our supermarket.
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The Apollo platform is valuable and we're thinking about ways to take advantage of it either by creating businesses or creating value by partnership.
Are we going to see more Legendary franchises?
You're going to see us, with Legendary, be more aggressive around the velocity of content. So the nice part about this investment is that Josh [Grode] knows that there's more capital from Apollo willing to support the business. Hopefully you'll see a lot more TV shows and movies. The pipeline for the next three years in terms of movies, we've already taken up in terms of velocity. It's an excellent way for us to get into the media.
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