Remember the Simple, Elegant Deal?

It's history. Today's protracted mergers involve ever more partners—and problems

David Gibson

by Jon Fine

Summertime, when much of media takes a siesta. But you can't say that about media's dealmakers this time around, because they've been snoozing all year.

Oh, there have been a few major deals. But just a few. Landmark Communications' Weather Channel went to a consortium of NBC Universal and private equity players Bain Capital and Blackstone Partners for around $3.5 billion. Sam Zell offloaded Long Island's Newsday to Cablevision (CVC) in a joint-venture arrangement—Cablevision now owns 97% of Newsday Media Group—that valued the paper at $650 million. And CBS (CBS) bought CNET (CNET) outright for $1.8 billion.

These days, that last deal, the most traditional of the bunch, looks more and more like an anachronism. Debt market troubles, the prospect of continued consumer-driven slowdown, and market uncertainty over the degree to which digital upstarts will digest Old Media's prospects—they all force newer approaches to simple buying and selling. The next wave of transactions will look different from those of the past. Complex times apparently call for complex deals. Or rather they force them.

IMPOSING A NEW REALITY

One media executive who has long worked for a major private equity firm says: "We're trying to do a fairly sizable deal, which would require a lot of debt financing." Given the travails facing the U.S. financial system, this isn't easy. "We've got terrified banks," this person acknowledges. "They don't know what they can do." As for media companies, uncertain prospects have hurt stock prices, and weaker stock makes using that currency less attractive.

Such market conditions will both tamp down the volume of properties coming onto the market—if you can wait out such an environment, you will—and impose a new reality on what becomes available. If a shortage of financing or a surfeit of uncertainty means you can't get something done on your own, you bring in the partners.

This is not a happy juncture for would-be dealmakers, says a veteran banker familiar with the media marketplace: "Partnership deals are usually a disappointment for everyone involved," and you only do such deals "if you have to." Having partners aboard attenuates your returns, since you're sharing slices of what could be all yours. More parties at the table can mean more complications when it comes to the daily management grind.

In an e-mail, Lisa Gersh, who as president of strategic initiatives for NBC Universal played a key role in the Weather Channel deal, disagrees. "Partnerships can provide an excellent way of bringing a variety of resources together," she says. (I am a contributor to NBC Universal's CNBC.)

Perhaps. But in earlier times, there was much less need for a company to bring outside resources together. Now, naturally, this deal formula is not universally applicable. Should Scripps Networks (SSP) decide to put itself up for sale—a prospect its executives recently dismissed—I'd expect Time Warner, (TWX) for one, to leap in with a solo bid for the prized Scripps cable assets and to do so far more aggressively than it did in the Weather Channel auction.

But that's a rare example. More typical of today is Sam Zell structuring complex Tribune deals to reduce a tax hit, as he did with his Newsday transaction. Or the (still) endless saga involving AOL (TWX), Microsoft (MSFT), and Yahoo! (YHOO) In that case, the simple deal—Microsoft buying Yahoo—couldn't get done. That leaves the three weary Web also-rans, all of whom have had extensive talks among themselves and with Google (GOOG), groping for some deal that makes sense.

If there can't be an outright purchase, the solution likely will come in a more complicated form, such as the arrangement some parties have discussed: combining part or all of the assets of two companies into a single joint venture, perhaps with one of the players assuming managerial control. The dealmakers will tell you that such setups do not lead to the best outcomes. But then, no one said these were the best of times.

Fine is BusinessWeek's MediaCentric columnist and Fine On Media blogger .