Bid for Time ups ante for Amazon and Google

AFTER Rupert Murdoch’s attempt to grab Time Warner Inc, online giants Inc and Google Inc may decide to accelerate their expansion into content.

The bid from Twenty-First Century Fox Inc would create the world’s biggest media company and bring HBO’s Game of Thrones and The Lego Movie into Murdoch’s fold. Amazon has started creating original TV shows, and Google’s YouTube has funded filmmakers to fill new channels, though neither is a formidable competitor to Netflix Inc or Hulu LLC. A takeout of Time Warner could drive Google and Amazon to get more serious about expanding, says CRT Capital Group LLC.

The Internet companies may prefer to sign licensing deals or build more content on their own, says JMP Group Inc. If they want to be bolder, Google or Amazon could buy their way to more programming with a purchase of The Hunger Games maker Lions Gate Entertainment Corp, or Amazon could even buy Electronic Arts Inc, CRT says.

French video game maker Ubisoft Entertainment would be easier to digest, says Bank of Montreal. Google could even go as far as to make a bid for Time Warner, Wunderlich Securities Inc says.

Should Fox and Time Warner combine, “a lot of chips are in one hat at that point,” Neil Doshi, an analyst at CRT, says in a phone interview. Amazon and Google would “have to get pretty aggressive in terms of how they think about content, what they want to do”.

Representatives for Mountain View, California-based Google and Seattle-based Amazon did not respond to requests for comment.

Offer confirmation

Time Warner, the owner of HBO and TNT, confirmed this week that it received a more than US$75bil offer from Fox. While the New York-based company rejected the bid, Murdoch is willing to pay even more, people with knowledge of the matter say, a sign the billionaire is undeterred by the rebuff.

The confirmation comes after Time Warner chief executive officer Jeff Bewkes was asked last week whether Google or Fox would be interested in a purchase. If Time Warner is in play, Google may be inclined to weigh an offer, Wunderlich said on Wednesday.

The potential acquisition sparked a rally in media stocks representing about US$90bil of shareholder value as investors bet it may presage more consolidation. Content providers could combine to build scale and strengthen their power to negotiate with distributors, which are striking deals of their own. It could also mean Amazon and Google may want to double down on content.

Proprietary shows and movies are appealing to the Internet companies because it gives consumers one more reason to engage with their platforms. Amazon has already been developing programming and financing pilot episodes for children’s shows and comedies to air through the company’s Instant Video service.

A few years ago, Google announced it would spend about US$100mil to support video programming on YouTube. The company also said last year that the site would begin selling subscriptions to film and TV services over the Internet to compete with Netflix.

Amazon and Google “are trying to build this consumer ecosystem to be the one-stop shop for media consumption”, Kerry Rice, an analyst at Needham & Co, says in a phone interview.

Exclusive producers

A takeover of a company such as US$4.4bil Lions Gate by either Amazon or Google could make sense, says Doshi of CRT. Alibaba Group Holding Ltd, China’s biggest e-commerce company, is teaming up with Lions Gate to stream Hollywood movies and TV shows through a new set-top box.

“A lot of these movie studios want to get deeper entrenched in online,” Doshi says. “And if Amazon or Netflix or Google has deep pockets and is willing to pay a lot of money to do deals, I don’t know if it would be too far off for one of these companies to potentially acquire a movie studio and be able to make movies exclusively for its subscribers.”

For Google, a deal would bolster the YouTube brand and allow the company to charge more for advertising on a high-quality film, the analyst says. On Thursday, the company reported sales that exceeded analyst estimates.

Amazon could consider buying a video game maker, maybe even a company as large as Electronic Arts, which is valued at US$11.6bil, to drive more people to gaming on its Fire TV system, according to Doshi.

Ubisoft, with a market value of about US$2bil, may be a more logical first step into video game content for Amazon should it pursue that path, says Edward Williams of BMO.

‘Left field’

“Amazon could step in and buy a console game company and then look to help that company take its content onto mobile through the Kindle ecosystem,” the analyst says in a phone interview from New York. “Buying an Ubisoft, which is a fraction of the size of EA, financially is just an easier one to swallow. It’s definitely a left-field move, but it’d be kind of an intriguing one.”

Representatives for Redwood City, California-based EA and Ubisoft says their companies don’t comment on speculation. A representative for Lions Gate, based in Santa Monica, California, didn’t respond to requests for comment.

Getting bigger in content doesn’t necessarily mean acquisitions. Buying a major media company is a risky and expensive endeavor, and Amazon and Google may prefer to just license shows and movies or negotiate a joint venture arrangement, says James McQuivey, an analyst at Cambridge, Massachusetts-based Forrester Research Inc.

“Frankly, owning the content creates all kinds of hassles,” he says in a phone interview. “I think most of these companies would want to think twice.”

Buying an established content producer could undermine the neutrality of the companies’ platforms, says Ron Josey of JMP Securities, a unit of JMP Group. Amazon and Google may also prefer to develop their own shows and movies. Such a move would mimic Netflix, whose House of Cards and Orange is the New Black have grown in popularity.

“Both of these companies are sufficiently large, they can sort of do whatever they want,” says Josey, a New York-based analyst. Google and Amazon probably “feel they can at least give it a good try on their own before they have to go out and buy someone to have that type of offering. History suggests that they believe they can build things just as well as anybody.” — Bloomberg

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