17 Aug Byron Allen’s Entertainment Studios Is Hungry for More Acquisitions
By Robert Marich
Media entrepreneur Byron Allen has been making ambitious acquisitions for some time and, bolstered by a recent $1 billion corporate refinance, he has an appetite for more.
Since last year, Allen’s Century City-based media company, Entertainment Studios, has purchased 16 broadcast TV stations in small and
medium-size markets for $500 million.
That binge follows the company’s acquisition of basic cable TV network The Weather Channel for $310 million in 2018.
In addition to his acquisition activity, Allen in June reached a carriage settlement for his cable networks with Comcast Corp., resolving a case that had reached the U.S. Supreme Court. And last summer, Allen personally invested in Sinclair Broadcast Group Inc.’s $10.6 billion deal to buy 21 regional sports networks formerly owned by 21st Century Fox.
Allen — who first earned fame as a teenage standup comedian and co-host of a hit NBC series in the late 1970s — started what is now known as Entertainment Studios in 1993.
Today, the company has annualized revenue estimated at $600 million and 1,300 employees. Entertainment Studios is under the umbrella of his Allen Media.
“We look at ourselves as a private equity company acquiring media assets that can work together” yielding synergy and growth, Allen said in an interview. “And we’re on an acquisition track.”
In February, in a move that received little press attention, Entertainment Studios closed a major refinance.
Institutional investors bought $660 million in first lien, senior secured term loan B debt and a $300 million unsecured note. RBC Capital Markets provided M&A advisory and arranged financing for Allen Media in the past 12 months.
Allen’s business also has a $60 million revolving credit line.
Maturities for debt stretch from 2025 to 2028, giving Allen breathing room. Allen Media’s debt is rated by corporate credit agencies in the speculative range, though stable and improving.
Allen said EBITDA cash flow is about $300 million a year, and he values the company in the single-digit billions of dollars, using standard cash flow multiples for media companies.
Tuning into TV stations
TV stations, though enduring eroding economics in recent years, are swept up in merger and acquisition activity, thanks to improved financials from growing cable carriage fees. That makes them a priority for more Entertainment Studios acquisitions.
Allen is primarily interested in affiliates of the big four TV networks — his company’s 16 broadcast TV stations all fall into that category — but the company is scouting digital media, too.
Existing operations include 24-hour cable TV/video streaming channels (Comedy.TV, Recipe.TV, Pets.TV, Cars.TV and others) and motion pictures — including theatrical distribution, which is one of the most lucrative parts of the movie business.
In addition, Entertainment Studios operates TV production and syndication businesses (the shows include “Comics Unleashed,” the long-running “Entertainers with Byron Allen,” and court shows, such as “Justice With Judge Mablean”) and digital media.
The company’s various businesses “benefit from a capex-lite business model, producing good liquidity and cash flows,” Moody’s Investors Service Inc. wrote in February.
Though the bulk of the company’s assets are traditional media, digital entertainment platforms are the industry’s hot spot, and they often carry sky-high valuations.
Entertainment Studios has a foothold in digital, creating the Local Now app, which Allen describes as “a combination of local news meets Netflix for free,” due to its advertising supported revenue model.
The company’s video-centric digital platform focused on Black audiences, TheGrio, saw its audience grow from less than 1 million monthly active users at the time of the its purchase in 2016 to more than 10.5 million monthly users today.
Allen posted a personal manifesto on TheGrio in June about the national dialogue on race titled “Black America speaks. America should listen,” which called for specific action on six fronts.
Speaking at the Black Business Matters webinar on July 30 organized by Los Angeles Business Journal in partnership with the Greater Los Angeles African American Chamber of Commerce, Allen expressed his frustration with mainstream financial institutions and their lending practices for Black people.
While lenders brag about generously funding “minorities,” Allen countered that they’re mainly catering to the female demographic. “If you look deeper, they are not lending money to African Americans, which is why our home ownership is low and our businesses are not properly capitalized with capital that is not predatory,” he said.
Allen feels personally singed on access to financing. In his early days, he said, his business was forced to sell receivables contracts to high-cost factor financiers despite having advertising contracts from blue-chip advertisers. “I’m not looking for a handout,” Allen said. “I’ve never looked for a handout in my 59 years on this planet. I’m only looking for a fair opportunity, but the opportunities have not been fair.”
In looking at Allen’s enterprise today, a prominent trait is corporate frugality. “Efficiency will always remain in our DNA,” he said, and Allen traced that emphasis back to the company’s startup roots.
Allen grew the company with persistence, energetic salesmanship and an ability to charm. (Don’t be shy to firmly press your “ask” in negotiations, he advised, because otherwise “you will die poor.”)
Moody’s estimates that about half of Allen’s business revenue comes from advertising where he has a long history of courting Madison Avenue for commercials placed in his TV shows.
Some 45 years after Allen first spoke into an open microphone, he’s still doing standup comedy, and he’s a regular on his company’s syndicated TV series “Funny You Should Ask,” delivering streams of jokes.
Allen is also the sole owner of Entertainment Studios, which makes the business minority-owned.
Supreme Court case
Entertainment Studios pressed a multiyear racial discrimination lawsuit against cable TV system giants Comcast and Charter Communications Inc. over content distribution. Though the U.S. Supreme Court in March sided with Comcast on a procedural issue, Comcast in June resolved the dispute by reaching a cable TV network carriage deal with Entertainment Studios.
S&P Global Inc. praised the agreement for providing carriage for Entertainment Studios networks and extending the company’s flagship Weather Channel carriage deal with a “modest increase in affiliate fees.”
That’s an achievement in a tough environment for price hikes because subscribership to traditional basic cable is shrinking.
Meanwhile, the litigation involving Charter — the nation’s second-largest traditional cable system operator — remains unresolved.
A knock on Entertainment Studios revolves around governance risks because the company’s ownership is concentrated in one person.
Allen waves off such concerns, saying the management team is deep and can achieve the company’s lofty growth ambitions. Its executive ranks are stable with some employees logging a decade or more of service.
Besides his passion for Entertainment Studios, Allen is a significant donor to the Democratic Party but pragmatically separates politics and business.
Sinclair Broadcast Group — with which he has a 27-year business relationship and with which his family office recently partnered for a regional sports TV investment — leans conservative.
Also, his Entertainment Studios’ movie arm distributed “Chappaquiddick,” which cast an unfavorable light on Democratic icon Ted Kennedy.
“Someone’s political preference is something that I’d never hold against them,” Allen says. “I do business with everyone. That’s why America is a great country.”
A Timeline of Success
How Byron Allen built his entertainment
1970s: As a teenager, Allen hangs around NBC Television studios and offices in Burbank, where his mother, Carolyn Folks, works as a network publicist.
1979: After working in clubs and as a joke writer, Allen achieves national fame as the youngest guest standup comic on NBC’s “The Tonight Show Starring Johnny Carson.”
1979-1984: Co-stars in NBC’s hit reality TV series “Real People.”
1993: Founds what becomes Entertainment Studios, the business that will become his flagship operating company, at his dining room table.
2009: Launches six cable networks simultaneously including Cars.TV, Comedy.TV and Recipe.TV.
2012: Rolls out seventh cable network JusticeCentral.TV.
2015: Buys domestic theatrical distributor Freestyle, now known as Entertainment Studios Motion Pictures, and related company Freestyle Digital Media.
2016: Purchases TheGrio, a digital video-centric news community platform focused on black audiences.
2017: Launches an annual Oscar-night fundraiser for Children’s Hospital Los Angeles with Hollywood talent performing.
2018: Entertainment Studios announces a $500 million credit facility; buys linear TV assets of The Weather Channel for $310 million.
2019: Acquires four network-affiliated broadcast TV stations for $165 million; invests with Sinclair Broadcast Group to acquire 21 regional sports TV networks.
2020: Raises $1 billion in debt financing, buys 11 network-affiliated broadcast TV stations for $305 million. Resolves racial bias litigation with cable TV giant Comcast, which signs a comprehensive content carriage deal.
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