Reese’s $900 Million Deal Secret

Tom Staggs at Sun Valley
Photo by Scott Olson/Getty Images
Matthew Belloni
August 5, 2021

The “business career” section of Kevin Mayer’s Wikipedia page is quite a ride. Not the first part, which details three decades of standard media executive jobs, culminating with running Disney’s streaming assets through the launch of Disney+. The head-spinning stuff starts in May 2020, when Mayer abruptly left Disney after being passed over for C.E.O: In just 18 months, Mayer has taken the top job at TikTok, bailed four months later after President Trump forced its Chinese owner to sell (that never happened); launched a SPAC with his fellow Disney alum Tom Staggs and a hodgepodge of figures including Shaquille O’Neill; merged that SPAC with a fitness app called Beachbody; launched another SPAC with Staggs; was in talks for a senior role at Redbird Capital; tried and failed to buy part of Scooter Braun’s company; joined Russia-made billionaire Len Blavatnik’s Access Industries as a senior advisor; became chair of Blavatnik’s sports streaming company DAZN; and, oh yeah, this week he convinced Blackstone, the private equity firm, to buy Reese Witherspoon’s Hello Sunshine company in a deal valued at $900 million.

Whew. And you thought you got restless during the pandemic.

Before we get into whether the Hello Sunshine deal makes a lick of sense, and what Mayer and Staggs are actually up to, let’s be clear about what this is and isn’t. First, it’s not a $900 million deal. Not in practical terms. It’s a $500 million-plus purchase, which funds operations and provides a nice exit for investors, including AT&T and Laurene Powell Jobs’ Emerson Collective. The extra $400 million or so is the “imputed” value of the equity Hello Sunshine will roll into the new, unnamed company that will be run by Mayer and Staggs and which Blackstone says will spend at least $2 billion to roll up similar producers. They’re all hoping that stake will be worth $400 million, and maybe it will be if the entity sells or goes public, but that’s a ways off and based on aggressive projections.

So while Witherspoon, C.E.O. Sarah Harden, and their team did very well, especially for a company founded just five years ago, they didn’t score the massive payout that the $900 million headlines might imply. Not yet, anyway. Remember, Hello Sunshine has no meaningful library assets and only recently generated a profit. The Information reported today that revenue last year totaled just $65 million and is expected to hit $125 million this year. I’m told projections are for revenue to double again in 2022. But even if that happens, Blackstone is still paying a far higher-than-normal multiple on paper.

So why does this deal make sense? Or, rather, why do the smart financial people at Blackstone, as well as lead bankers Kurt Simon and Alekhya Uppalapati of Goldman Sachs, and Hello Sunshine’s lawyers at Kirkland & Ellis, think it makes sense? After all, multiple suitors considered Hello Sunshine, including established streaming companies, and Carlyle, another private equity firm, was in the running until nearly the end, I’m told. Among the dealmakers and attorneys I asked this week, the best rationale came in a two-word text from a deal lawyer: “Prestigious Kardashians.” That’s not a knock on Hello Sunshine or Witherspoon, who I’ve always found to be extremely smart and savvy in my brief interactions with her. What the lawyer is referring to is that while most seem to be focused on the women-centered shows and movies that Hello Sunshine will produce, the real upside here—much like the businesses built by KimKylie, and the others—is the stuff around Witherspoon and the infrastructure she and Harden have built to take advantage of that.

There’s a reason that Mayer was practically begging interviewers this week not to call Hello Sunshine a “production company.” Shows like Apple’s The Morning Show and movies like Netflix’s upcoming Your Place or Mine are the prestige part (as much as a rom-com with Ashton Kutcher can be called “prestigious”), but they’re work-for-hire jobs, not the true business opportunity. Mayer and Witherspoon prefer “next-generation media company,” which sounds like how Katzenberg described Quibi, but in this context it just means “we do extra stuff”: The book club, and the branding work, and the podcasts, and the e-commerce on social media, and all the products that can be launched in the vein of Witherspoon’s Draper James fashion line (which is separate from this deal). Hello Sunshine might not be particularly dominant in all those categories now, but the foundation is there, Witherspoon and Harden are highly motivated, and with the expertise of two Disney guys and a shit-ton of money, the company can get really good at it and scale.

I made a joke last week that Witherspoon may be the ultimate NFT. But the better analogy, of course, is to the creator economy. If real businesses are being built on the backs of shirtless TikTok dancers and Instagram comedians, imagine what an Oscar winner can do? That’s not a revolutionary idea; the entrepreneurial stars—Ryan ReynoldsJessica AlbaMark WahlbergGwyneth Paltrow, to name a few—long ago realized that they’re all Kardashians now. They may get paid well to make movies, and the movies keep them relevant, but they only earn real money if they co-own a gin (Reynolds), or launch and sell an ad agency (also Reynolds), or take their consumer products company public (Alba), or hawk vagina-scented candles (like I need to tell you who does that). This week, Forbes declared Rihanna is a billionaire, and it ain’t from music; it’s thanks to her Fenty Beauty makeup line. Dozens of companies have sprung up recently to match celebs with brands, and for good reason. These deals aren’t sexy, and they rarely make the trades, but the talent agencies are laser-focused on them now because they have to be. Unless you’re Tom Cruise or Scarlett Johansson, the only way for stars to get rich in Hollywood these days isn’t in Hollywood.

With that in mind, try to put a price on the ability to share in all those businesses with an established A-list star. Apparently, it’s $900 million. Witherspoon has simply created infrastructure around her celebrity, sold some shows that reflect her particular sensibility and her mission to empower female creators, and now, auctioned it to the highest bidder and positioned it for growth. The market is currently so flooded with capital, and there are far fewer Reese Witherspoons than there are finance dudes wanting to be in business with them. Hence the elevated valuation. But the broader thesis, when considered in the context of the creator economy, actually makes sense to me. And now, with the board seats in the new entity, Hello Sunshine will enjoy the first-mover benefit of participating in whatever else Mayer and Staggs buy, what those deals look like, and the overall strategy of a new, well-funded “arms dealer” in the streaming wars. It’s potentially a nice place to be.

And let’s not dismiss that traditional production business. Those who think the Hello Sunshine deal is cuckoo keep emailing me that the whole point of the coming consolidation of entertainment around a handful of vertically-integrated streaming services is specifically to avoid having to buy from outside suppliers. But I don’t totally buy that. Sure, the path for independents may become much tougher, and many companies may disappear, but strict vertical integration never really works in Hollywood. The best creative talent will go wherever they get the best deal, and sometimes that’s a well-financed independent backer.

Second, the talent community—namely the agencies—is highly incentivized to push back against walled gardens and price deflation. If Netflix stops paying top dollar or refuses to buy from outside suppliers, the agencies will try really hard to push A-level projects to other outlets. And third, these streaming services are ultimately in the business of attracting and keeping subscribers, so they need to be at least a little flexible to make bets on what they think will resonate, regardless of ownership. AppleTV+ certainly has the money to own everything it airs, but its biggest hit, Ted Lasso, is made by Warner Bros. from a character created for NBC Sports. Netflix’s most-viewed series right now, according to Nielsen, is Manifest, another Warners show, which aired originally on NBC. Independent producers have found ways to stay in the game by incentivizing talent. Consider Chernin Entertainment’s deal to produce with Endeavor Content or MRC’s joint venture with UTA, both efforts to funnel top creatives directly to indie studios before their projects can be scooped up by the streamers, which then allows these indies to sell the projects to those same streamers—at a premium.

So the reason for Blackstone’s roll-up probably exists, even if I don’t quite buy Mayer’s argument that combining disparate production companies makes the whole more valuable than the sum of the parts. But we’ll see. Mayer and Staggs have been pounding the pavement for months and are close on other deals, according to sources familiar with their efforts. Imagine Entertainment and Will and Jada Pinkett Smith’s company are coveted, but those don’t make much sense to me because they don’t excel at the “extra stuff.” LeBron James and Maverick Carter’s Springhill Entertainment seems a perfect fit; it produces film and television shows and also manages the Uninterrupted brand, sells tons of merch, owns a branding agency, launched a social activism arm, and employs about 120 people. It’s already doing a lot of the stuff Hello Sunshine aspires to do. The Disney guys are also looking at international producers, as well as companies with distribution arms. If the Mayer and Staggs plan to fund shows and retain rights, they will need to either sell them directly to global streamers or license them territory by territory around the world. For the latter, that distribution infrastructure will be key. In fact, Endeavor Content, which is for sale thanks to the settlement of Endeavor’s litigation with the Writers Guild, could be a nice place to spend a chunk of that $2 billion. (A representative for Endeavor said the sale process is in early stages and the Blackstone group is one of several looking at the Endeavor Content.)

Hovering over all of this is the question of whether Mayer and Staggs are the right guys to attempt such a financial and creative gambit. Having both been passed over for the top Disney job, their multiple gigs and business ventures feel a bit like a billion-dollar version of Larry David’s “spite store.” Indeed, people at Disney I’ve spoken to chuckle at Mayer’s supercharged activity since he left, as if he was a highly-programmed deal robot under Bob Iger who finally broke free and went berserk. On Zooms, the muscular Mayer can seem frenetic, say those who have met with him. And his critics point out that while he is often credited as the deal guy behind Disney’s blockbuster purchases of Pixar, Marvel, Lucasfilm, and Fox, other acquisitions in the digital space—Maker Studios, Club Penguin, a big chunk of Vice—were, uh, less successful. (Mayer declined to comment.)

Add to that the Blackstone factor. Hello Sunshine is now controlled by a big faceless private equity firm. And more than one person pointed out to me that the firm’s leader, Steve Schwarzman, is among the more fervent Trump cheerleaders. The Times noted in January that Schwarzman, who gave more than $4 million to Trump’s campaign and inauguration, stopped short of criticizing the former president after the Jan. 6 insurrection. Blackstone is not just Schwarzman, of course, and lots of P.E. firms back content companies without issues, but what if Hello Sunshine wants to make, say, a controversial HBO limited series about Trump’s role in said insurrection? “Blackstone will not be involved in content decisions,” a rep for the firm told me.

That said, I get the sense that while Hollywood can’t quite figure out why Hello Sunshine is worth that kind of money, the smart people are rooting for Mayer and Staggs to succeed. And not just because everyone saw those $900 million headlines and began salivating. More buyers and well-funded sellers, especially one associated with a talent like Witherspoon, will be better for the overall creative economy. As the content industry is slowly gobbled up by tech powers, a private equity firm with billions to spend on creative businesses isn’t a bad thing—until, of course, they flip the whole thing to Apple or Amazon.