Competition for content production is driving up spending, and private real estate investment firms are finding a way to put money in the game.
Most recently, Hackman Capital Partners LLC and Square Mile Capital Management LLC agreed to acquire ViacomCBS Inc. Studio City in Los Angeles for $1.8 billion, according to The Wall Street Journal. The deal represents the culmination of two trends: first, ViacomCBS' balance sheet recovery from a 2019 media megamerger; and second, Hackman's run of studio real estate deals, as the firm looks to capitalize on the need for studio space amid an increasingly competitive streaming video business.
Deal after deal
ViacomCBS has been expanding its digital footprint since the combined company was formed in 2019 when CBS and Viacom merged in an $18.29 billion transaction In part, it has been using funds from real estate dispositions to advance that strategy.
In August, ViacomCBS agreed to divest its CBS Building in New York for $760 million. Proceeds from that transaction will be used to "further financial flexibility to invest in ViacomCBS strategic growth priorities, including streaming," according to a company statement.
At the outset of 2019, prior to the merger, CBS Broadcasting shed the Television City studios in Los Angeles for $750 million, also to Hackman, and Joseph Ianniello, then-acting CEO of CBS. The company said in a statement that proceeds from the transactions would go toward content creation, among other things.
Living the stream
ViacomCBS is investing more and more in streaming, according to its Nov. 4 quarterly financial filing. In 2020 there was a slight decrease in content expense due to COVID-19 restrictions, but content production and programming expense grew 20% year over year to $8.65 billion in the first nine months of 2021, and the company attributed the growth to streaming content investment.
Meanwhile, the company has been able to decrease debt and increase cash on hand. Total debt was $19.24 billion in the third quarter, significantly higher than debt reported before the close of the CBS-Viacom merger, but down 10.5% year over year. The company reduced debt in each quarter of 2021 so far, and its debt-to-EBITDA ratio compressed by 7.2% year over year in the third quarter.
The company's divestitures have supported a meaningfully improved cash position as well, with ViacomCBS reporting $4.82 billion in cash and cash equivalents on hand at the end of the third quarter, up 56.3% year over year, and that was after reporting triple-digit growth in cash holdings in prior quarters.
Private screening
In the real estate transactions ViacomCBS has undertaken so far, the company will retain its use of the facilities under lease agreements with the buyers, according to filings associated with the deals. While that may improve the company's financial position related to the assets, it also gives private money an increasing stake in the ongoing expansion of content creation.
Beyond the Television City and the reported Studio City deals, Hackman acquired Silvercup Studios in New York for $500 million. Hackman also recently joined a group acquiring Sony Group Corp.'s Sony Pictures Animation campus in Culver City, Calif., for $160 million, and a group that acquired two Irish studios, Ardmore and Troy, for an undisclosed amount.
Ianniello in a press release related to the Television Studios transaction even pointed to Hackman's stewardship of the Culver City property as evidence of the firm's commitment to the production business.
Hackman is Los Angeles-based, but it has historically focused on industrial real estate investments, according to its business description. In the past three years, there has been a shift to studio deals, with five of its most recent seven transactions targeting entertainment facilities, but the firm is not alone in the strategy.
TPG Capital LP's real estate arm acquired Cinespace Studios in Chicago and Toronto for $1.1 billion, according to a Nov. 12 press release and sources cited by the Journal. Netflix Inc. in 2019 signed a lease with the Cinespace studio to launch a 164,000-square-foot Canadian production hub. Each of Hackman, TPG and Blackstone Inc. have been active buyers in the space, according to the Journal.
The increase in private money going toward studio purchases comes as private equity deals targeting media properties overall have declined. Private equity deals with media targets dropped to 131 in 2020, down from 166 a year earlier. Year to date in 2021, as of Nov. 16, the number of deals totaled 118.
