Gerber: Media needs AI, dealmaking to capture value

Long-term investors in entertainment are frustrated. Stock prices for most large-cap companies in the sector look undervalued, and rising interest rates make transformative deals harder to close. Ross Gerber, CEO and president of Gerber Kawasaki, told TheWrap that the industry needs to embrace change — including AI, creator content and gaming — to attract young viewers and unlock value.

Gerber, whose firm manages $4.78 billion, said higher rates are chilling merger activity. “I don’t see deals getting done right now,” he told TheWrap. “When rates move this quickly, it changes the numbers on every deal fairly substantially.”

He pointed to Paramount's planned $110 billion acquisition of Warner Bros. Discovery. “This is the worst thing that could have happened to them, with rates soaring,” Gerber said. “To take on $80 billion of debt to buy Warner Bros. right now is insanity.” Every 1% increase in interest rates adds $800 million in costs for Paramount, he said.

Focus on debt will help rivals like Disney and Netflix that are not over-leveraged, Gerber said. Even those companies should look to cut deals to boost growth and attract investors.

“AI is going to revolutionize many industries including entertainment, and in a good way,” Gerber said. “I think the entertainment people are scared of the wrong thing, because with AI, you’ll be able to make content a lot cheaper.”

Gerber called Netflix stock a buy. Shares are down about 45% from their 52-week high and trade below $70. With about $4 per share in earnings, he estimates Netflix is worth closer to $120. He also likes game publisher Take Two Interactive, which has “Grand Theft Auto VI” coming in November. Gerber sees Take Two as a potential acquisition target for Netflix down the road.

Disney stock is also cheap, Gerber said. “Everything seems to be working at Disney, but nobody will buy the stock. The market just doesn’t like legacy assets like cable.”

An exception could be Comcast, which plans to split NBCUniversal from its cable and broadband operations. Gerber said the theme parks make NBCU an interesting investment after the split.

Gaming and YouTube are eating into traditional TV and movie viewing, Gerber noted. “Young people are glued to Roblox or Fortnite or Call of Duty or Grand Theft Auto.”

He also confirmed a federal judge approved the settlement of an antitrust suit against Paramount's acquisition of WBD. The combined company, to be named Skydance, filed a $41.4 billion debt offering. Paramount plans to close the deal on Oct. 6.

Analyst Robert Fishman of MoffettNathanson estimated in a report that AI content efficiencies could save studios $10 billion over three years. “The biggest ‘winners’ should be the most-scaled, content-agnostic distributors (i.e. YouTube) and brands synonymous with the highest quality human-led storytelling (i.e. Disney),” Fishman said.

• AI
• Disney
• Netflix
• Paramount+
• Ross Gerber
• Warner Bros. Discovery