Candle In The Wind: Five-Year-Old Media Company Faces New Questions After Hello Sunshine Exit

Now that Candle Media's shine has faded following the large-scale sale of its Hello Sunshine shares, new questions have been raised about the company's future. Financial details of the deal, in which Reese Witherspoon is buying back her stake from Candle with the participation of French firm Mediawan, have not been disclosed. But a veteran investor […]

Now that Candle Media's luster has dimmed with the sale of its majority stake in Hello Sunshine, new questions are being raised about the company's future.

Financial details of the deal for Reese Witherspoon's company, which she is buying back from Candle in partnership with French company Mediawan, have not been disclosed. But a veteran investor familiar with the transaction told Deadline that it would likely cost Kendel hundreds of millions of dollars in losses. The main culprits: a $900 million valuation when the company took a majority stake in Hello Sunshine in 2021 — a high level given its output and lack of profitability — and dramatic changes in the recent media landscape.

Five years ago, Candle was lit with $2 billion in private equity backing from Blackstone. At the time, the industry was in the midst of a massive broadcast and the company had two titans at the helm, co-founders Kevin Mayer and Tom Staggs. The two had spent years together in senior positions at Disney, helping to pull off major M&A deals such as the acquisitions of Pixar, Marvel and Lucasfilm and the lightning-quick merger with Capital Cities-ABC that landed ESPN. Watch on Deadline

Today, industry watchers wonder if Candle's next logical move could be a deal for the company's remaining major asset, children's entertainment powerhouse Moonbug. After all, private equity firms view their financing and portfolios in terms of returns over years, not decades.

Moonbug, which produces CoComelon, is in better financial shape than many of its peers. But the nearly $3 billion Candle paid to acquire it set the bar high. A deal to unload the company is not imminent but is being actively considered, a source familiar with Mayer & Staggs' strategic thinking said. By regrouping, Kendel has reduced staff and restructured from its origins as a buyer of assets to an operator of them.

A representative for Candle declined to comment when contacted by Deadline. Blackstone did not respond to a request for comment.

The problems for private equity-backed players go far beyond the entertainment sector and stem mainly from higher interest rates. In an article on the growing plight of small and medium-sized private equity players published alongside Hello Sunshine news on Tuesday, the Wall Street Journal quoted a banker as saying the situation is approaching a "period of reckoning". As money returns to the margins, private equity fundraising is on track for its worst year since 2020.

Rate-driven increases in the cost of borrowing money are putting pressure on many companies like Candle, as they must try to sell their assets at higher levels to make up the difference in rates. For those in the media business, however, demand for streaming is also slowing as Netflix and other players tighten their belts and the industry braces for the impact of the Discovery Bros. merger. Paramount-Warner is gearing up. Skydance, their new parent company, has promised to save at least $6 billion in costs related to the deal. Podcast platforms that once threw cash around have also cut their fees.

One of Candle's early investments, along with Hello Sunshine, was a minority stake in Westbrook's Will Smith Manufacturing Company. Less than three months after the deal was announced in January 2022, Smith became an industry icon and was banned from the Academy of Motion Picture Arts and Sciences for 10 years after slapping Chris Rock on stage at the Oscars. While Smith has returned to the lead roles, the episode added another wrinkle to the difficult task of profiting from film and television production.

Along with Westbrook, the company invested in Spain-based content studio Exile and social media storytelling company ATTN:

No one who has done business with Mayer and Staggs or is familiar with the company's operations blames them personally for the company's problems. It seems like it's just a case of awkward timing.

Both are well-respected and well-respected executives, given their largely charismatic presence at Disney, where each served in the company's strategic planning department before rising to higher positions. Even after Kendall was founded, former Disney CEO Bob Iger retained the pair as consultants. David Zaslav brought in Mayer as he looked to close the Warner Bros. Discovery merger in 2021. Mayer also led a number of sports initiatives as head of sports streamer DAZN before launching Candle.

"We've moved aggressively," Mayer said of Candle during a Deadline-moderated panel appearance at last month's Zurich conference. "When I thought about what I wanted Candle to be, I wanted it to be a media company with a modern configuration that revolved around great storytelling told by great storytelling."

Mayer recalls that Kendall spent about $4 billion on the acquisition, and wonders how that compares to the massive scale of Disney and other giants. "There's a minimum scale you probably need to have an impact," he said.

Moonbug, while accounting for three-quarters of Candle's costs, is a valuable asset in the YouTube-based creator economy. At the Zurich conference, Mayer noted that Netflix's incarnation of Cocamelon was the streamer's most popular title in 2021-2024. The company's YouTube channel has 13 billion views per month, more than all of Disney including ESPN and four times the views of MrBeast.

"There is no doubt that if they get an offer in the right place, they will look to do a deal," says one investor. "But in today's climate, would anyone step forward to make such a proposal? That's really the question."

For Mayer and Staggs, despite their incredible reputations, "it's going to take a while for people to get over it," the investor added. "Although this business can have a short memory if it's money it's true."

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