How Hollywood’s Dealmaking Landscape Looks Now: A Chat With Raine Bankers in London and L.A.
The Raine Group is a dealmaker that Hollywood folks come across regularly. As an investor, the merchant bank, launched in 2009 by former Goldman Sachs banker Joe Ravitch and UBS banker Jeff Sine, owns stakes in such media, entertainment and related-sector powerhouses as Ron Howard and Brian Grazer’s Imagine, Spanish-language media titan TelevisaUnivision, TV production company Propagate, music streaming service SoundCloud and sports betting company DraftKings.
Meanwhile, the list of clients of its advisory business, ranging from mergers and acquisitions, divestitures and private capital raising to strategic advice, reads like a who’s who. Over the years, they have included the likes of Universal Pictures, when it struck a slate co-financing deal with China’s Perfect World Pictures; Endeavor, including on its $775 million sale of an 80 percent stake in Endeavor Content to South Korean giant CJ ENM; WWE, for example on its merger with Endeavor’s UFC; CJ ENM on its investment in SkyDance Media; and the Roald Dahl Story Co. on its sale to Netflix.
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With high inflation and other macroeconomic clouds affecting the TV advertising market, Hollywood giants cutting costs as they look to push their streaming services closer to profitability, and many stocks under pressure amid investor skepticism, dealmaking in the media and entertainment space has been challenged. But many on Wall Street predict further consolidation ahead.
In this context, The Hollywood Reporter spoke to Raine partners Erik Hodge, who leads the company’s L.A. office and its efforts in the entertainment and content space, and Jason Schretter, Raine’s London-based head of Europe, Middle East and Africa. They shared their insights and takes on the current deal environment, the firm’s expansion in Silicon Valley and in international markets, what’s next for Hollywood M&A, and their take on the opportunities for Raine’s portfolio companies.
In the media and entertainment industries, there was a deal boom, which seems to have slowed down. Do you have any big-picture thoughts on where we stand and whether the sector’s deal boom has come to an end, as some argue?
Hodge: There are challenges, but there have always been challenges, and there are opportunities. Depending on people’s expectations, there are still opportunities for deals to get done, specifically in entertainment. You do have all the macro challenges, whether it’s interest rates and the ad market down to the way the world has changed its views on streaming, and now a writers strike. But at the end of the day, great content creators find a way to cut through. And that extends to the deal environment.
Schretter: Out of London, I do all the sectors. I partner with Erik on entertainment stuff, and then sports and music stuff. So it goes across. I would say it’s sector-specific. Just taking sports, we haven’t seen a slowdown at all. In fact, there has been an acceleration of activity. Music is a similar dynamic where people are just eager to go into it. I think the earlier, more growth-focused, the things that you need to see develop before they find full traction, that stuff has been slower. But with impressive management teams doing the right thing, there is still a market. It’s just that people are a little bit more choosy.
Jason, you mentioned sports. Among others, Raine ran the auction of English Premier League club Chelsea FC that led to last year’s sale to a group led by Todd Boehly [a part-owner of THR], Clearlake Capital, and others. And the company recently advised sports entertainment powerhouse WWE on its merger with Endeavor’s UFC. Why is sports such a hot sector?
Schretter: We’ve been on a run with Chelsea and now Manchester United, Inter [Milan], and Olympic Lyonnais. It’s been an exciting time, and I think it’s driven by two things. Number one is COVID put a spotlight on the fact that [sports] is the one thing that people need in their lives. It’s really embedded, it’s something that people rushed back to once they were able to, and it probably got them through tough times during that period. In good times and bad times, sports seems to be the one thing that continues to do well.
The other thing is, I think there is still a growing maturity and professionalism of sports that is continuing to develop. That’s driven by team owners and league owners and everyone really saying that some of these things can be done better. From the U.S. perspective, when you look at what some of the top leagues have done, whether it be the NFL or the NBA: global effort, real marketing, directly knowing customers — these are the things that other leagues and teams are trying to replicate. And for entrepreneurs familiar with these sectors, whether it be from a media angle or a sports angle, or whatever angle, they see opportunities to effectively take these and turn them into more than just a team. It’s a social network, it’s a commerce platform, it’s a lot of things all under this envelope of a sports team or league.
You have also mentioned music as a continued area of deal activity. Any thoughts on what is driving that, and are there any recent Raine music deals you would like to highlight?
Schretter: The continued growth of streaming and the rise of the independent artist creates new investment opportunities in content and platforms across the music industry. In the past year alone, we’ve been involved in several industry-leading transactions, including the sale of [hip-hop label] Quality Control to [South Korean music giant] Hybe, the foundation of [former Apple Music top executive] Larry Jackson’s music platform Gamma and [private equity firm] Francisco Partners’ acquisition of Kobalt Music Publishing.
Erik has talked about the rise of streaming. Jason has mentioned the COVID pandemic. Do you believe that “content is king” is still one key mantra in the industry? And are there any fundamental mantras or things that have changed amid all the upheaval of recent years?
Hodge: I’ve never really thought of it as a monarchy. In some instances, the content is, in some instances, the audience is, in some instances, the distribution platform is [king]. It’s specific to the content and the situation in the ecosystem. All that being said, truly great content, and that’s a small percentage, will always have massive amounts of value — sports IP, the true franchises. But I’ve always been reluctant to crown one or the other the king. I think it’s an ecosystem, and there’s relative value that shifts around depending on the situation.
Are there any emerging areas, say AI or the metaverse, that you guys and Raine overall have been spending more time on? And how big a deal are they?
Hodge: I would think of AI as a potential enabling tool at this point that might just help in either the creative process or the content discovery process. I don’t think it’s a replacement. I think it’s a tool. And then I think of things like NFTs, the metaverse as just additional avenues of either monetization or engagement. I’ve always been reluctant to think of either AI or Web3 as it relates to entertainment as ends in themselves.
When you look at metaverses in general, I’ve always held the view that people want to “live with” great IP and engage with it beyond the movie or the series. Anything that gives an audience an opportunity to do that can be really interesting and can be heavily monetizable.
On the AI side, it’s all about efficiency, whether it’s helping a writer, I know that’s a hot topic, ideate, create a better screenplay in a more frictionless environment, or helping a recommendation engine match demand and supply of content — those are at this point tools that I think could ultimately make the ecosystem more efficient.
Schretter: Yeah, I just want to double-click on one thing. AI and metaverse are not the thing, it’s a means to a thing. So you need to have some sort of substance to your business model, and that may be enabled, amplified, accelerated by AI or the metaverse as a means. But when we see opportunities throughout our business that are fronting AI as the event, those are things we tend to stay away from, because I don’t think we really have a great sense of whether that as a stand-alone has lasting power. But we have seen some amazing businesses that are using these tools to drive their initiatives, which is exciting.
Raine has long had a global focus. Are there any regions of the world where you see particular or growing opportunities for Raine?
Schretter: If you look at our website enough, you will see how it goes from point to point, and you’ll see additional dots forming on the global map. We have been very pragmatic about those, but are really trying to go after what we see as markets with huge opportunity, the latest two being Paris — we believe there’s even more focus on continental Europe and want to really make sure we have a presence on the ground that we can act upon — and Singapore, a market that we most recently launched and that we are very excited about. We see things in those markets that we understand from being in more mature markets but are really at the edge of turning into something special. So we have made an effort, but I don’t think we are necessarily done there.
Erik and I just spent a week in the Middle East, and we had double-digit meetings over the course of a week. We are increasingly excited about those being markets that aren’t just sources of capital, but actually have the potential to be creating and developing companies and content and entertainment and things that are going to be beneficial for our ecosystem. The hope, from our perspective, is that that does bleed down into Africa as well. We have seen early steps of that. Frankly, for the size of which we tend to get involved, it may still be a little bit early, but not for long. We are going to be spending a lot more time there over the course of the next, let’s call it, 12 to 18 months.
I remember, Erik, you worked on a Universal slate financing deal with a Chinese company a few years ago. Does China still present opportunities?
Hodge: I would say China has been less of a focus for us, just given the political climate and the ability to actually do deals there. Bilateral U.S.-China deals, Hollywood-China deals, they are just not happening right now. China is still a massive market with an enormous amount of consumers and there are some incredible companies there. That was part of the thinking behind expanding Raine into Singapore, because that is a place where China is interacting with other Asian companies. We still want exposure to China. It’s just that the days of Hollywood, China and the direct relationship have certainly changed.
There are other regions, like Korea, where the market is extremely exciting. Look at deals like Endeavor Content and CJ ENM, which we were instrumental in, Wattpad and [South Korean internet conglomerate] Naver, which we were instrumental in. Those are examples of just the dialogue that’s happening between Korea and Hollywood. It’s a very exciting place to be doing business.
Raine’s portfolio companies include Imagine Entertainment, TelevisaUnivision, Propagate, SoundCloud and DraftKings, among others. I wanted to ask you about a couple of them. What’s your take on where Imagine stands and what’s next for it? There seems to be recurring chatter about a possible change in ownership or investments or fundraising …
Hodge: Imagine is one of the best brands in the world of content creation, and they always get a lot of calls — sometimes they engage, sometimes they don’t. Some of that noise has been around for the last several years. I’m more optimistic about the business than I’ve ever been, just given the platform that they have built. When we invested [in 2016], it was very focused on broadcast television and theatrical film through deals at Universal and Fox. Today, they have a very, very, very broad content offering that extends to documentaries, lower-budget content through our acquisition of Jax [Media], high-end documentaries through our acquisition of [Alex Gibney’s] Jigsaw [Productions]. We have increased the leadership by adding people like Steve Shikiya [as chief operating officer] and Justin Wilkes [who was promoted to president of Imagine early this year from his previous roles as chief strategy officer of Imagine and president of Imagine Documentaries and Brands]. And that core engine of great high-end premium IP that Brian [Grazer] and Ron [Howard] have driven over the last nearly 40 years is still in place. So I’m very excited about the prospects for the company. How that translates into deals is kind of a secondary consideration.
How about TelevisaUnivision and its upside?
Schretter: When we made that investment, we invested on a trend that we had really focused on forever, which is this growth of the power of the Spanish-language-focused consumer within North America. The merger of the U.S. and Mexico [businesses] through TelevisaUnivision was something that, when we first started Raine as a company, would not have been thought possible. Thanks to TelevisaUnivision [CEO] Wade [Davis] and the leadership there, they have done an amazing job bringing those companies together. This is a segment of the market that isn’t fully served by the big streamers. So TelevisaUnivision uniquely has the potential to go and serve this audience with things like streaming and other things that have been taken for granted. We are just really excited. Everything seems to be going in the right direction, and even with some of the ad market ups and downs, the company is still performing well, which is great. I don’t think every U.S. media company can say that right now.
Anything else you would like to emphasize?
Schretter: I would just emphasize: The business is not in a shutdown, closed-for-business mode. We aren’t seeing that at all. We still see a lot of opportunities, both for buyers, sellers and investors.
Hodge: The way we work as a team is highly differentiated. I think Jason covers Europe at the highest level of anyone who’s doing it in this space. I think the same about my colleagues who cover Asia or India. And I think we now have one of the best, if not the best, sports franchises, one of the best, if not the best, music franchises, and gaming and entertainment.
Interview edited for length and clarity.
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