Credit: Shutterstock photoAs Michael Lynton, the former head of Sony Entertainment (SNE), heads for greener pastures at Snap Inc., speculation has been bandied about what might happen to the fate of Sony's entertainment arm, especially Sony Pictures. While some have speculated CBS (CBS) might be a natural buyer, perhaps the most obvious one of all isn't an old-world media conglomerate, but rather a new one -- YouTube.
The Google-owned (GOOG) video-sharing website and not CBS, Paramount, Fox or any other major conglomerate would make the most sense for Sony Pictures, should the Japanese-based conglomerate want to offload the unit.
Unlike the aforementioned companies, YouTube (via its parent company, Alphabet), has the balance sheet to do such a deal. At the end of the third-quarter, Alphabet had more than $83 billion in cash and cash equivalents, plenty enough to swallow a deal for Sony Pictures, which could go for as much as $20 or $30 billion, depending upon the math.
The Hollywood Reporter has mentioned CBS (as have others) as a potential buyer of Sony Pictures and it makes sense. Les Moonves has long wanted to own a movie studio and it's the only major U.S.-based media conglomerate without a significant movie studio (CBS Films is small in comparison to Warner Bros., Universal, 20th Century Fox, Walt Disney [DIS] and Paramount).
However, Moonves lacks the balance sheet that Google/YouTube has, despite having the same ambitions.
Like CBS and its CBS All-Access over-the-top service (which has more than 1 million subscribers), YouTube has its own streaming service, YouTube Red. By owning Sony Pictures, Google/YouTube could create exclusive, must-see content for YouTube Red.
Sony Pictures has the license for a great number of Marvel characters (Spider-Man and his whole universe, as well as several others), all of whom could be given television shows of their own. It would also potentially be the home to James Bond for a continued number of years, with the franchise's home in doubt, as the most recent movie, Spectre, was the last one under the existing contract at Sony.
For those concerned it would potentially harm competition, there's no reason Sony would not continue to honor existing contracts that the studio has with services like Netflix (NFLX), Hulu, Amazon (AMZN) and others. It would lose much needed revenue and relationships, especially at a time when both are becoming harder to come by and maintain.
Press reports had mentioned that Viacom ex-CEO Phillippe Dauman had wanted to sell a stake in its movie studio, Viacom, valuing the studio as much as $10 billion (which ironically, was the price it acquired Paramount for more than 20 years ago).
Given that Sony Pictures generated around $8 billion in revenue in fiscal 2016 (far more than Paramount), it's a good bet that it could be valued significantly higher than the $10 billion valuation of Paramount, leaving a potential buyer to a select few.
YouTube CEO Susan Wojcicki has talked about making original content, but not at the rate that Netflix or Amazon have done, due to its service being ad supported. However, owning Sony Pictures and putting TV shows on YouTube Red could help give the service a boost, given its reliance on subscriptions for revenues, not advertising.
Should Sony ever decide to put Sony Pictures on the block, YouTube would be crazy not to take a look at it, especially considering the importance content will have going forward in deciding which streaming service captures mind-share, as well as market share. And at a price tag of $20 billion, there are few companies that could swallow that pill. Google, however, is one.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
