The buzz generated by the launch of Happy Ranch last Friday had barely subsided when Daenerys Entertainment once again made waves with the phenomenon of American Idol. As the ratings for the reality show were revealed, the capital markets responded immediately on Wednesday with a direct and dramatic impact.
At 9:30 a.m., as the New York Stock Exchange opened, Daenerys Entertainment's stock price jumped by 2.6% compared to the previous day's close.
But that wasn't the most remarkable development.
The most attention-grabbing event was the surge in the stock price of Metropolitan ABC Group. By the close of trading on Wednesday, the stock had surged past the $172-per-share agreed price set by both companies back in June. By the end of the day, the stock had reached $179.75, bringing Metropolitan ABC's market value to $21.9 billion.
In comparison to the $172 per share and $20.9 billion total market value agreed upon during the merger negotiations, a single day had created a $7.75 price differential and added $1 billion in value.
Daenerys Entertainment's stock also saw a significant rise, closing at $81.25, an increase of 10.1% compared to the $73.75 price set in June, pushing its total market capitalization to a staggering $171.6 billion.
Notably, Metropolitan ABC Group's stock price had risen steadily from $145 in June to over $179, a 23.5% increase. This growth, driven by Daenerys Entertainment's high premium offer, significantly outpaced Daenerys Entertainment's own stock appreciation.
In the past three months, both companies' stock movements defied conventional merger trends.
Typically, in mergers, the target company's stock price rarely surpasses the agreed deal price before regulatory approval due to risks like potential deal rejections. For Metropolitan ABC Group, it should have been the same—its stock price should not have surpassed $172 before the merger was finalized.
Indeed, before Tuesday's announcement of the merger's regulatory approval, Metropolitan ABC's stock had remained below the deal price, closing at $169.375 on the day of the announcement.
However, the alignment of the merger approval news and the breakout success of American Idol triggered an unexpected surge in Metropolitan ABC's stock on Wednesday, causing it to exceed the agreed-upon price.
This surge reflected investors' confidence in the post-merger prospects of the combined company.
The original Survivor helped NBC capture the top spot in the broadcast network market for several consecutive years. Now, with American Idol pulling in over 30 million viewers, there was little doubt that ABC would dominate the broadcast network market in the coming year.
The media and entertainment industry often revolves around individual blockbusters.
It's about the people—and the projects.
In the past, FOX had relied heavily on American Idol, with the show generating a significant portion of the network's profits and helping it rise to parity with the other three major networks.
Still, the real target of investors' excitement wasn't just Metropolitan ABC—it was Daenerys Entertainment.
Contrary to typical merger patterns, where the acquiring company's stock often drops, Daenerys Entertainment had seen its stock rise. Following the announcement of the merger agreement on June 19 and the closing price on September 27, Daenerys' stock had gained 10.1%, adding $15.9 billion to its market value—equivalent to nearly half of Metropolitan ABC's market cap.
The merger was already locked in unless canceled, meaning the final settlement would be based on the original agreement.
By Wednesday's close, Metropolitan ABC's stock had gained 4.7%, compared to the $172 agreed-upon price. Meanwhile, Daenerys Entertainment's stock had risen 10.1% in the same period.
The merger agreement allowed Metropolitan ABC shareholders to choose between stock and cash payments. Even at $179.75 per share, swapping entirely for Daenerys Entertainment stock would theoretically result in a paper gain of over 5%.
This, of course, was only in theory.
The key would be how the combined company's stock performed after the merger. Given the circumstances, few expected the newly-formed Daenerys Entertainment Group's stock to perform poorly. After American Idol's stunning success, some Wall Street analysts projected that the stock could rise by at least 50%, with the combined company's market value potentially reaching $300 billion.
If those predictions came true, opting for more stock would undoubtedly be the most prudent choice.
Even Warren Buffett, who was in Omaha at the time, made a call requesting detailed viewership data and expected revenue figures for American Idol. The old-school investor, who Simon remembered once openly stating that he didn't believe in business miracles, was clearly reevaluating his decision on whether to stick to his original strategy of exchanging half stock and half cash.
Buffett had faced significant pressure in recent years due to his refusal to invest in tech stocks. Earlier this year, Berkshire Hathaway's stock had even declined despite the overall rise in the U.S. stock market. It wasn't until Daenerys Entertainment announced the merger with Metropolitan ABC that Berkshire Hathaway's stock, as a major ABC shareholder, finally stopped its downward slide.
Now, if most investors opted for more Daenerys stock while Buffett stuck to his half-stock, half-cash strategy, he might once again face discontent from shareholders, potentially causing Berkshire Hathaway's stock to drop.
Buffett had always avoided tech stocks because many new tech companies were in the cash-burning phase, with no clear path to profitability or the kind of cash flow Buffett valued.
But Daenerys Entertainment was different.
Even with its high stock price, Daenerys Entertainment's film, TV, gaming, and music businesses all contributed substantial revenues and profits. Moreover, the company, already a giant in its industry, continued to grow rapidly. Thanks to its long-term strategy of developing content franchises, Daenerys Entertainment's business was far more stable than its competitors, avoiding the volatile swings of profit and loss. All of these factors aligned with Buffett's investment criteria.
The only downside was that Buffett struggled to accept Daenerys Entertainment's high valuation.
Yet now, even if he still found it hard to swallow, Buffett had to seriously consider going against his instincts and making a more market-aligned decision.
For the average audience, stock market movements were a passing curiosity. They were more concerned about American Idol's promise to give away 5,000 iPlayer devices during the first episode.
Wednesday morning's media commentary echoed this sentiment. Many felt that American Idol's success was closely tied to this massive giveaway. Other shows that offered prizes usually only gave out ten or so items. No one had ever seen a show that gave away 5,000 prizes in one go.
This kind of promotion was hard to manage.
Ensuring that millions of viewers could vote within a short window, setting up a fair lottery system, and delivering thousands of prizes were all logistical nightmares that required a significant budget.
But American Idol had smartly solved the voting issue.
Each contestant had a unique number. Viewers called a dedicated hotline developed by Verizon for Daenerys Entertainment. No human operators were needed—viewers simply entered the contestant's number to cast their vote.
Online voting was even simpler.
Log onto the official website, find the voting page, enter the contestant's number, and click submit.
That automatically entered them into the prize draw.
Since the fall season was still in the audition phase, viewer participation was primarily for engagement. After the New Year, when the spring season kicked off, viewer votes would start to influence the competition's outcome.
The 5,000 iPlayer devices given away during the two-episode premiere were awarded through a specially developed online lottery system. Winners were announced on the American Idol website, and they had to check for themselves if they had won, then provide their shipping address. Daenerys Entertainment would handle prize distribution over time.
Apart from the final delivery, the entire process required little manual intervention, minimizing costs.
Even the logistics of shipping the prizes were handled by Amazon. Tinkerbell had already set up its online store on Amazon's marketplace, and even though American Idol would eventually give away 100,000 iPlayer devices, that number was insignificant compared to Tinkerbell's overall online sales.
The key to all of this was coordination between different companies.
Daenerys Entertainment, Tinkerbell, Igreat Media, Verizon—all worked closely together to pull off the massive prize giveaway without causing chaos or exceeding the budget.
This was not something other networks could easily replicate.
After American Idol premiered on September 26, Sex and the City debuted on USA Network on September 28.
Thanks to the success of the Real Housewives series and shows like Desperate Housewives, USA Network, which Daenerys had acquired from MCA and later bought out Paramount's share, had become one of the most successful basic cable channels in North America, primarily targeting female viewers.
Over the years, USA Network's subscriber base had grown from 21 million when Daenerys first took over to 62 million, covering more than 70% of the U.S. population. Its monthly carriage fee had also risen from a paltry 15 cents to 55 cents, more than tripling.
As a result, USA Network now earned $34 million per month from carriage fees alone—half of what its total annual revenue was when Daenerys first acquired it. For 1995, USA Network was projected to generate over $800 million in total revenue from both carriage fees and advertising, with a net profit exceeding $100 million.
Simon had repeatedly vetoed suggestions from the TV department to launch a second USA channel, avoiding overextension. However, with USA Network's growing content library, launching USA-2 or even USA-3 in the near future seemed inevitable.
Currently, USA's flagship show
remained Desperate Housewives. Now in its fourth season, the show had premiered on September 14 with 12.5 million viewers for its first episode. Sex and the City was scheduled to premiere on Thursday, September 28, strategically positioned after Desperate Housewives to capture its lead-in audience.
Compared to the American Idol frenzy, Sex and the City's debut was much more understated.
Since it was no longer produced by HBO, the TV department had structured the show as a standard 43-minute, one-hour drama. The first season consisted of 16 episodes. There was no contingency plan because the budget was low, with each episode costing just $1.5 million, making the total budget for the first season $24 million.
This was partly due to the high production costs of shooting in New York City. Otherwise, the budget would have been even lower.
Additionally, because the show was airing on basic cable network USA, the production team had to adhere to a TV-14 rating, meaning it wasn't suitable for children under 14. This was a far cry from HBO's R-rated version.
Thanks to the lead-in from Desperate Housewives, Sex and the City premiered at 9 p.m. on September 28 with an average viewership of 7.5 million for its first episode, outperforming Desperate Housewives' initial numbers from a few years ago.
And unlike the popcorn entertainment of American Idol, Sex and the City garnered more favorable reviews from critics.
The following morning, many well-known critics published reviews, most of which were highly positive, with the show receiving an average score of 8.2 across media outlets.
A female critic from The Boston Globe praised the show, writing: "Though the title might suggest otherwise, Sex and the City offers a sharp, insightful look into the challenges urban women face in every aspect of life. The storyline may seem meandering and lack a strong central plot, but it's filled with a unique charm that keeps viewers engaged, making it hard to switch channels."
This was exactly the kind of response Simon had hoped for.
With 7.5 million viewers for its first episode and Nielsen data showing steady ratings throughout the hour, there was no sharp rise like American Idol, nor a steep drop as seen in many new shows. This indicated that viewers who started watching the show stayed tuned in.
With such a strong debut, it was likely that by the end of the season, Sex and the City would peak with over 10 million viewers, positioning it as USA Network's next flagship series alongside Desperate Housewives.
The day after Sex and the City premiered was Friday.
On September 29, the last trading day of the month, Daenerys Entertainment's stock, buoyed by the success of Happy Ranch and American Idol, closed at $83.375, giving the company a market capitalization of $176.1 billion. Meanwhile, Metropolitan ABC Group's stock closed at $183.25, bringing its market value to $23.3 billion.
The combined market capitalization of the two companies was $199.4 billion—just shy of the $200 billion mark.
That Friday, after receiving SEC approval, both companies officially announced a one-month trading halt, with the expectation that trading would resume in early November under the new Daenerys Entertainment Group stock.
At the same time, Igreat Media successfully completed its two-week-long IPO roadshow.
With a projected market value of $150 billion and plans to raise $25 billion, it was the largest IPO in history. Despite this, demand exceeded the offering by more than six times. That afternoon, Igreat Media and its underwriters held a press conference in New York to announce that Igreat Media would officially begin trading on the NASDAQ on November 6.
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