THE SCOOP Candle Media, the Blackstone-backed firm rolling up Hollywood production companies, is moving to slash costs and reorganize its grab bag of expensive acquisitions, which include Reese Witherspoon’s Hello Sunshine. One-time Disney heirs apparent Kevin Mayer and Tom Staggs founded Candle with $1 billion from Blackstone in 2021, the last year of everything-up-and-to-the-right. Their animating idea was that the new, streaming Hollywood would favor producers who could bring not just projects, but strong brands with social media followings, to studios that were closing the gates around their own shows. “[That’s] the one thesis that is holding true, though it’s fraying around the edges slightly,” Mayer said in a wide-ranging interview with Semafor at a Tribeca hotel last Friday. Candle, whose glamorous run of acquisitions included the $900 million purchase of Hello Sunshine, has moved into its green eyeshade era. With costs mounting, the consultancy FTI has spent recent months studying Candle’s spending and its organizational structure and recommending cuts, the pair confirmed. Now Candle will split into two divisions: Animation projects will be folded into Moonbug, which produces the hit kids’ show CoComelon and is, Mayer and Staggs acknowledged, the clear winner among their investments, accounting for the vast majority of Candle’s profits last year. Most other pieces will move into a live-action division, to be rebranded as Candle Studios, run by Hello Sunshine chief Sarah Harden. That will include production companies Exile, True Stories, and Fauda creator Faraway Road, though its biggest bet by far remains Witherspoon’s company, which produced Hulu’s Little Fires Everywhere and Apple’s The Morning Show. The reorg isn’t a prelude to a sale, the two executives insisted, but rather an effort to cut costs. Candle launched into a frothy market for streaming shows, and even then paid prices that raised eyebrows. It’s belatedly trying to consolidate back offices to save money. “We paid at the top of the market,” Mayer said. “Have the financials borne out the way we would like, to have to support the prices that we paid? Probably not.” But he said: “Talk to us in two or three years.”  Gary Doherty/Variety via Getty ImagesBEN’S VIEW Candle was a darling of the content bubble, and executed a remarkable wealth transfer from investors to big-name Hollywood talent including Witherspoon and Will Smith, recipient of a disastrous minority investment. (“The lesson there is key-man risk,” Mayer said. “We’re glad we only took a piece.”) Now, Moonbug has almost single-handedly saved it. Despite a drumbeat of questions from the industry about the company’s strategy, properties including CoComelon make Candle a powerhouse in children’s media, a great business on YouTube, and has a solid foothold in streaming. ATTN is well-regarded and successful, if in a different business than the rest of its holdings. Candle, Mayer said, is “profitable and growing.” LIZ’S VIEW Private equity outgrew its LBO roots years ago. But Blackstone is now in the business of worrying about whether Will Smith slaps somebody on national television. That’s about as far as you can get from pinching pennies at a corrugated cardboard factory, and a sign of how much private equity has changed. Candle launched with an expensive takeover of Hello Sunshine, which had no profits to speak of and a business that doesn’t scale all that well: Its big hits have all starred Witherspoon, who can only be in so many places at once. It’s a producer-for-hire that has bet on a virtuous cycle of influencers, community, and other buzzwords more often spouted by venture capitalists than their more mature cousins in private equity. Looking back, Candle feels like the rocket launched right at the end of an economic cycle — growthy and buzzy and built around big personalities at a time when those things were more attractive than they are now, two years into a rates cycle that has brought discipline back to investing. Candle may yet turn out to be a winner, for all the reasons Ben explains above, particularly the undeniability of Staggs and Mayer. They’re good at this. More broadly, there’s the question of whether Wall Street can roll up Hollywood the way it has rolled up car washes and opticians. TPG, which made money with CAA, last week announced that it was backing a new talent agency and struck the first in what is expected to be a series of roll-ups and minority investments — a very Candle-like playbook. But if you ask executives at Blackstone or TPG why their firms haven’t done many acquisitions themselves, they’ll tell you that investing is a talent business and that talent businesses are finicky and mostly immune to the financial engineering and operational tinkering that makes deals successful. As Lloyd Blankfein at Goldman Sachs (another place that’s been fairly allergic to M&A) used to say, the assets go up and down the elevator every night. There hasn’t been a wave of asset manager tie-ups, despite a lot of industry forces pointing in that direction, and it’s because managing talent is, as Staggs told us, “a particular science and art.” Ben's view on why Hollywood’s eyes are at least as much on Mayer and Staggs as on their company. → |
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