Deal or No Deal: The Shadow Over Sun Valley

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The annual conference at this Sun Valley, Idaho, resort has usually been a mecca of dealmaking.

The annual conference at this Sun Valley, Idaho, resort has usually been a mecca of dealmaking.


Photo:

Drew Angerer/Getty Images

SUN VALLEY, Idaho–One by one, enormous white SUVs disgorged the moguls beneath the arched stone entrance of the Sun Valley Lodge, their casualwear belying their millions:

CBS
Corp.

Chief Executive

Leslie Moonves

in an untucked denim shirt,

Facebook

Chief Operating Officer

Sheryl Sandberg

in jeans and slip-on sneakers, Discovery Chief Executive

David Zaslav

in an electric green zip-up vest.

This is a place for collegiality, the dress code suggested. We are all in this together. For 35 years, this is the tone that media investment bank Allen & Co. has set with its annual conference, which for one week a year turns this peaceful mountain resort into a mecca of media dealmaking.

But lately, as traditional media companies face an existential onslaught from tech players like

Netflix
Inc.

and

Alphabet
Inc.’s

YouTube, the media scene has increasingly begun to feel like a late-stage game of musical chairs. The biggest players have decided to either get out while the getting is good, in the case of Time Warner Inc. and

21st Century Fox
,

or stretch their balance sheets to near the breaking point to bulk up in the face of the growing threat, à la

Walt Disney
Co.

and

Comcast
Corp.

That has left some Wall Street analysts and investors wondering whether remaining players—cable-channel groups such as

Viacom
Inc.,

CBS Corp. and

Discovery
Inc.

and studios like

Lions Gate Entertainment
Corp.

—will seek refuge by selling to tech companies like

Apple
Inc.

or

Amazon.com
Inc.,

or telecom players such as

Verizon Communications
Inc.

Acquiring a traditional entertainment company could theoretically mean some advantages, like revenue diversification, for tech firms. Faced with plateauing iPhone sales, Apple has set aside $1 billion this year for content deals as it moves deeper into the media business. Facebook is prepared to spend a similar amount as it pushes deeper into web video to offset an expected slowing growth in its core business. Amazon, already a significant player in online streaming, is spending around $5 billion annually on content.

As many newcomers to Hollywood have discovered, from Facebook to YouTube, making TV-quality content for the web is harder than it looks.

Softbank’s Masayoshi Son, center, in Sun Valley declared himself ‘not interested in traditional media.’

Softbank’s Masayoshi Son, center, in Sun Valley declared himself ‘not interested in traditional media.’


Photo:

Drew Angerer/Getty Images

Still, any media companies hoping that their content-making expertise would be in demand from tech magnates in Sun Valley were likely to be disappointed. SoftBank Chief Executive

Masayoshi Son,

whose nearly $100 billion Vision Fund has been eyed as a potential source of media investment, sauntered over to the press (in white leather-mesh slip-on shoes) early in the conference to quash these hopes, saying with a broad smile, “I’m not interested in traditional media.”

Ms. Sandberg and Apple CEO

Tim Cook

echoed the sentiment the following day. Whatever they were there to do, it wasn’t to buy a media company. IAC/InterActive Corp. Chairman

Barry Diller,

who has navigated the intersection of media and tech perhaps more than any other single executive, said that while he expected more media consolidation, he thought it was unlikely that any tech companies would buy media companies “because the gulf is too wide.”

Their reticence is understandable. Traditional media companies’ profits are expected to drop by 41% over the next seven years, according to Sanford C. Bernstein analyst

Todd Juenger,

due to cord-cutting and advertising declines. Netflix’s profits, meanwhile, are expected to more than quintuple during that period.

Netflix has shown the media industry that it doesn’t need to buy film and television studios to compete directly against the biggest media companies on earth: It can simply sign away their talent, like hitmaking showrunners

Ryan Murphy

and

Shonda Rhimes,

and outspend them on production. Among the traditional media executives milling about the brightly colored flowers in Sun Valley, no number is scarier than the $8 billion that Netflix plans to spend on content this year. As one person familiar with Netflix’s strategy at the conference put it, the studios are “just real estate.” Even their fabled libraries of films and television shows, some of which go back nearly a century, hold little allure, as they are largely already licensed out for years to come. Buying them to use for one’s own purposes would cut off this revenue stream.

“The big issue is buy versus build, and the overwhelming preference is to build when it comes to content assets,” said

Brian Wieser,

an analyst at Pivotal Research.

So, with little help of a tech rescue and a very short list of telecom companies as potential acquirers—one of which,

AT&T
,

is already trying to digest the rather large media meal of Time Warner—media companies are left to mostly merge with each other.

But this year in Sun Valley, the moguls who might logically be running into each other’s arms were busy avoiding each other. Because Fox’s agreement to sell the bulk of its assets to Disney prohibits it from speaking to other bidders, Comcast Chief Executive

Brian Roberts

could only indirectly signal his intentions to Fox Executive Chairman

Rupert Murdoch

through the nuances of Comcast’s sweetened bid for Sky, despite them both making their way through the chilly desert dawn to the same breakfasts and panels. (They used separate entrances, however, with Disney CEO

Bob Iger

favoring the same entrance as Mr. Murdoch and his son, Lachlan.)

Meanwhile, only a few months after CBS and Viacom Inc. were engaged in merger talks, the paths of Mr. Moonves and Shari Redstone, the controlling shareholder of CBS and Viacom, didn’t cross, as their lawyers back in New York continued to prepare for their legal showdown in October. Two years ago, as Ms. Redstone was in the midst of a power struggle at Viacom against their mutual rival, former Viacom Chief Executive

Philippe Dauman,

the pair spent their time at Sun Valley forging an alliance, with Mr. Moonves driving her to dinner in a rented Buick.

This year, the tableau was different: On the conference’s first evening, Mr. Moonves drove his wife,

Julie Chen,

to dinner. Ten minutes later, Ms. Redstone emerged from the lodge with former Disney Chief

Michael Eisner

and his wife, and the three made their way on foot in the same direction.

Write to Keach Hagey at keach.hagey@wsj.com