Private Equity Could Be Surprise Guest in TV Drama

(Bloomberg Opinion) -- Trying to convince investors to buy into your strategy is hard enough. When your own employees don’t like it, you have serious problems.

And in the case of ProSiebenSat.1 Media SE, an activist investor or private equity firm might eye that discontent and sense an opportunity to target a firm which still generates healthy returns, even if they’re in decline.

That’s the issue facing Chief Executive Officer Max Conze. The stock has fallen 26 percent since he unveiled his vision for the German broadcaster in November, which involves a focus on ramping up production of German language content and extending the investments in new digital offerings that were started by his predecessor. On Tuesday, the firm announced the departure of the finance and commercial chiefs, adding to a slew of recent resignations from the top ranks.

Manager Magazin attributed the exodus to disagreements over Conze’s approach, saying his management style has riled both employees and the Hollywood studios with whom good relationships are essential – one manager described him as “bumbling” – to the point that outgoing Chief Financial Officer Jan Kemper asked the board to oust his boss because of concerns over the way he was running the company.

Private Equity Could Be Surprise Guest in TV Drama

Replacing the chief commercial officer, who manages the relationship with advertisers, is particularly worrying at a time when ad revenue is already declining. Brands will seek to exploit any weakness to negotiate better terms, and a management change is just such an opportunity. 

With the broadcaster already trading at a discount to its peers, it looks extremely vulnerable to an approach by an interloper spying a better sum-of-the-parts valuation than the current market capitalization suggests. There is value in the studio operations, which produce hit shows such as the Amazon Prime drama Bosch and Showtime’s documentary series The Circus, and digital arm.

Even though the studios produce less than 10 percent of revenue, the importance of original content is only growing. It’s meanwhile unclear how successfully synergies can be generated from digital operations which include price comparison, dating and e-commerce sites. Yet divesting those arms would leave behind a broadcasting business that will still have to fight the onslaught of streaming services and declining ad sales. Conze needs to start delivering, and soon. Income from those digital ventures has yet to outpace the drop in ad revenues – profit is set to decline this year.

Private Equity Could Be Surprise Guest in TV Drama

But some responsibility must also lie with Chairman Werner Brandt. Shareholder returns have fallen by an average of 11 percent a year under his five-year stewardship, underperforming peers. He appointed Conze, former CEO of Dyson Ltd., when other executives with a deeper understanding of the industry were available, and it looks like this is feeding the turmoil in which the company now finds itself. Those missteps have made him an easy target for an activist ahead of the May annual general meeting.

Private Equity Could Be Surprise Guest in TV Drama

Conze already had a tough task when he took the job, given the vicissitudes of the television industry. The recent upheavals might make ProSiebenSat more attractive to an investor who thinks a better management team could turn it around.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Alex Webb is a Bloomberg Opinion columnist covering Europe's technology, media and communications industries. He previously covered Apple and other technology companies for Bloomberg News in San Francisco.

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