Atwater’s Schlogel: Institutional investors have viewed media and entertainment with suspicion

As PE giants spend billions in the content rights space, Schlogel discusses the benefits of investing in media and entertainment, from the US to South Korea.

Music and entertainment rights deals have come to the fore in recent weeks. Their independence from the state of the economy and compatibility with the mega-trend of digitisation have major investors like Blackstone, Apollo Global Management, and KKR spending billions.

Private Equity International caught up with Vania Schlogel, founder and managing partner of media and entertainment investor Atwater Capital. The firm styles itself as “operational capital”, leveraging partnerships with creative management teams and other investors primarily on a deal-by-deal basis. The firm has ambitions to raise a larger, co-mingled fund in the future. Atwater often invests alongside global firms including TPG, EQT and KKR, where Schlogel started her career.

Her first PE investment was in the buy-and-build of BMG Rights Management, which today is the world’s largest independent music publisher. Before founding Atwater, Schlogel stopped off at ROC Nation, rapper Jay-Z’s entertainment agency, where as CIO she oversaw the Tidal acquisition. She also helped develop operating strategies, such as capitalising on the trend – then nascent – of media platforms investing heavily into content as a customer acquisition and retention tool.

What benefits do non-traditional investments like music rights and TV production equity offer to institutional investors? What are the unique risks in the asset class, and how do you balance them?

For the longest time, institutional investors have viewed the media and entertainment landscape with a degree of suspicion, citing a primary concern of being ‘hit driven’. However, myriad forms of content rights (be it music, film, TV, digital imagery, etc) exhibit qualities that are incredibly attractive to institutional capital. This includes acyclicality – even in recessions, people still seek joy and entertainment – and stable, predictable cash flows. Portfolio diversification mitigates unique hit risk.

Notably, content rights also offer investors exposure to favourable digitisation trends that are buoying the overall market for content. On a nominal basis, subscription-based distribution services underpin the economic model of content monetisation. When we look through all the way to the end consumer, many behavioural facets of content-generated revenues are not that dissimilar to software as a service’s recurring and highly scalable revenues.

In this vein, why shouldn’t the value of content be rewarded for the same attractive features as SaaS models?

You have a few LPs in Korea. How did you form those relationships, and how do your LPs work with you on projects?

We viewed Korea early on as an innovator on the global scene, with troves of original storytelling. It also has the fastest internet speeds in the world, which facilitates constant innovation in content generation and distribution. Atwater opened a Seoul office in early 2018.

Wiip Productions is a fantastic case study of how we work with Korean LPs, and specifically strategic Korean LPs.

In 2020, Atwater took a minority shareholding in Wiip and I called my friend, Jeongin Hong, the chief executive of [South Korean television network] JTBC’s holding company, which oversees its content-related activities. Jeongin and I had a similar vision for what JTBC and Wiip could achieve together, and Atwater invited JTBC Studios as an LP in the fund.

To get a sense for the strategic value of JTBC, imagine a media conglomerate that owns the Korean equivalents of HBO, several pay TV channels, Hulu, The New York Times, and a top-three cinema chain – this is JTBC. We believed that Wiip, as a studio of premium episodic content (such as Emmy Award-winning Mare of Easttown), and JTBC could benefit from cross-border pollination of ideas and original IP.

Shortly after closing our 2020 investment in Wiip, we introduced the creative teams of Wiip and JTBC, and the rest is history. When partnerships work really, really well, the job of the shareholder is actually easier: get out of the way! JTBC and Wiip developed an excellent working relationship, and almost a year later, JTBC purchased a majority shareholding in Wiip.

How do you balance a profit motive with promoting content that is artistically and culturally valuable?

As Atwater became more successful, we were able to become more selective about the teams and projects we would invest behind. As such, while we do not claim to be a social impact fund, I am very proud of whom and what our capital has been able to support.

While women comprise half of the moviegoing audience, just one-third of key behind-the-scenes roles (director, producer, writer, etc) for independent films in 2020 were female. Of the projects Atwater has backed with talent attachment, two-thirds are directed or written by a woman. For Leonine Studios, where I serve as chairperson, we will be at gender parity on the board by Q1 next year. None of the above required any commercial sacrifice; in fact, these examples of increasing gender diversity achieved positive commercial results.

I believe one of the greatest unconscious biases that we as a private equity industry harbour today regarding diversity is the assumption that diversity is a quota. I believe greater diversity brings greater commercial performance because now we are pulling the best talent from the broadest pool possible.

Is there still room for a boutique firm like yours at a time when mega shops are attracting more capital than ever?

My primary goal when launching Atwater was to be partnership capital. This meant partnering with the management teams of our portfolio companies, partnering with our strategic and financial LPs, and partnering with other large funds. So long as the market knows us as value-add investors who enjoy putting in a bit of operational elbow grease, I believe we will always have a role to play.

Vania Schlogel started her career at KKR before becoming the chief investment officer of ROC Nation. In 2017, she founded Atwater Capital, a Los Angeles-based media and entertainment investor. Projects produced by its portfolio companies include Mare of Easttown (HBO Max); Dickinson (Apple TV+); Dark (Netflix); and Call my Agent (Netflix)