Blackstone evaluates options for Reese Witherspoon's Hello Sunshine, sources say

(Corrects name of Moonbug Entertainment from Moonbug Kids in paragraph 14)

By Dawn Chmielewski, Amy-Jo Crowley

(Reuters) -Blackstone is exploring options for Hello Sunshine, one of the best-known assets in the portfolio of its Hollywood media company, Candle Media, including the possibility of combining it with another company, four people familiar with the matter told Reuters.

Candle Media's acquisition of Reese Witherspoon's Hello Sunshine, the female-focused entertainment company behind Apple TV+’s “The Morning Show” and Amazon's "Daisy Jones & the Six," catapulted the fledgling media company to prominence in 2021.

 As with other independent production companies, Hello Sunshine has struggled as video streaming services cut spending and the Hollywood strikes froze production, three of the people said. Its diversified business, which includes an in-house social agency called Solar, that connects brands to women through storytelling, an annual Shine Away event and Reese's Book Club, helped it remain profitable despite the recent entertainment industry turmoil, a fourth person said.

 Blackstone and Candle Media executives are considering options that would give Hello Sunshine greater scope and scale, such as combining it with another studio, according to the four people familiar with the matter who spoke on condition of anonymity because the discussions are private. These sources caution that Blackstone is not actively soliciting offers, though one of the sources added that in a period of media consolidation, "every single independent studio is looking to pick a dance partner." 

"While we don’t comment on deal speculation, we regularly explore strategic opportunities to drive growth, maximize value, and remain adaptable in a rapidly evolving industry," a spokesperson for Candle Media said.

RTL Group, Europe's largest broadcaster, is exploring options for its Fremantle production unit, including a merger, given a broader cutback in TV commissioning across the industry, Reuters previously reported. British broadcaster ITV has also been holding early-stage talks with Abu Dhabi-backed group RedBird IMI about a possible merger of their respective studio businesses.

The private equity firm that backed Candle Media’s high-profile acquisitions -- including its $900-million deal for Hello Sunshine -- recently conducted a strategic review of all of the Candle Media businesses, the people said.

Blackstone decided to sell Candle Media's ATTN, a media company best known for topical short-form videos targeting Gen-Z and millennials, following inquiries from prospective buyers, two of the sources said. 

PORTFOLIO COMPANY

 Candle Media's structure as a portfolio company -- as opposed to a business engaged in financing Hollywood production slates -- allows for this flexibility should an interested buyer emerge, said one of the four sources with knowledge of the strategy. 

Hello Sunshine and ATTN were among a series of acquisitions Candle Media struck as it sought to capitalize on the seemingly insatiable content needs of fast-growing streaming services. It acquired Moonbug, the company whose children’s entertainment brands also include CoComelon and Little Baby Bum, for around $3 billion. It also snapped up Faraway Road, the producer of the Netflix show “Fauda,” and took a minority stake in Will and Jada Pinkett Smith’s production company, Westbrook.

Wall Street’s enthusiasm for the streaming business cooled in April 2022, when Netflix reported its first loss of subscribers in a decade. Suddenly, investors began to question the billions of dollars media companies were spending on content, in their money-losing pursuit of subscribers. 

This bottom-line focus took a toll on independent studios like Candle Media. The effect was compounded, in mid-2023, by Hollywood’s dual writers’ and actors’ strikes, which halted production for six months.

Candle Media responded to streaming’s newfound frugality by announcing it was cutting costs and reorganizing the company last July into two divisions: the live-action Candle Studios that is run by Hello Sunshine chief Sarah Harden, and children's entertainment group, Moonbug Entertainment. 

London-based Moonbug is profitable, generating revenue from its 270.5 million YouTube subscribers, distribution deals from video streaming services Netflix, Amazon Prime Video and Disney+, and proceeds from the Spotify music service, two of the sources said. Annual revenue approaches several hundred million dollars, they said. 

Hello Sunshine has been a prolific producer of film, television, scripted and reality series. But it has been caught up in the budgetary pressures, longer sales cycles and shifting schedules that have become commonplace in Hollywood after the 2023 strikes, the people said.

It is expected to release nine projects this year, including Amazon's wedding comedy "You're Cordially Invited," starring Witherspoon and Will Ferrell, with another nine entering production, the fourth person said.

(Reporting by Dawn Chmielewski in Los Angeles, Amy-Jo Crowley in LondonEditing by Anousha Sakoui and Nick Zieminski)