Where will Netflix head after computer games?
Where will Netflix head after computer games?
Consolidation, content wars, and new technologies are driving trends behind consolidation and M&A in the TV, film, and entertainment industry. Media giants are busy building out their platforms, thereby creating challenges and opportunities for fast-growing entrepreneurial companies.
In the early 1980s, there were around 50 dominant media corporations in the US. Today, you could argue that there are about a handful. At least of the old guard.
AT&T, Comcast, Disney, News Corp, and ViacomCBS have spent years building up and building out their conglomerates covering traditional media, including newspapers, magazines, book publishers, motion picture studios, radio, and television stations.
However, they face stiff competition from incumbents across new media formats. Say online film and series, and most will immediately think of Netflix, online music, Spotify, and online videos, likely YouTube.
As customers are increasingly migrating to digital solutions, media companies are turning to M&A to keep up and retain market shares and build out their offerings.
Consolidation in the content wars
Scale and international presence do not only matter for media conglomerates. They are also requirements if you hope to become a content partner of a major media company. A Disney or Netflix’s focus is collaborating with studios able to produce large amounts of quality content for their internal competition.
This is one of the factors leading to increased consolidation of production companies. The moves include media companies themselves – or outside investors like private equity (PE) firms – merging several companies to achieve scale and become viable partners for the likes of streaming platforms.
Simultaneously, big media companies are looking to grow even larger. Deal drivers include synergies and savings from combining services – and the competition for attractive content as media and TV continue to move more and more into the digital realm.
Mickey Mouse buys Simpsons – and satellites
Disney’s US$71.3 billion acquisition of Fox, bringing together Mickey Mouse and The Simpsons, illustrates how much ground massive media entities cover. The Fox acquisition, among other things, included:
- 21st Century Fox's movie studio
- Cable channels FX and National Geographic
- 300-plus international channels and 22 regional sports networks
- Ownership of titles such as Avatar, The Simpsons, and countless other franchises
- Fox’s 50% share of Endemol Shine Group, an Indian satellite service
- Fox’s 39% interest in European pay-tv provider Sky
- Fox's 30% stake in Hulu
Since then, Disney has been busy divesting non-essential deal assets, which has led to consolidation in other areas.
Newcomers pushing harder
Elsewhere, M&A activity – and consolidation efforts - is also high. BDO’s latest edition of MEDIATalk shows a 37% YoY uptick in media deals between 2020 H1 and 2021 H1. In a survey, 43% of media companies said mergers or partnerships were on their radar, while 34% were considering acquisitions.
In the technology space, establishing yourself as a platform for a range of integrated services is a preferred business strategy. The same applies for technology companies in the media space (Netflix, Hulu) and for technology companies with media divisions (Amazon, Google). Their business moves include non-traditional, interactive, and live media formats such as computer gaming. Amazon has Twitch, Google has YouTube Gaming and has, similarly to Netflix, launched a gaming service.
One of the drivers for the companies’ activity is the move toward more mobile media consumption, which in the United States is set to increase by 50 minutes per day between 2018 and 2022.
Furthermore, offering bundles of services, including a mix of new and traditional media types, looks like a way to attract and retain customers in a competitive market. It is a business model reminiscent of telecom’s quad-play offerings.
Start-ups and the fight for future dollars
Netflix’ business model has been hailed and wondered about in equal measure. The streaming giant has repeatedly said that it will not introduce a cheaper (or free) version that includes adverts. This is markedly different from many other platforms, including technology competitors like YouTube and Spotify.
For TV and film companies, it may point toward some of the changes that are likely to be underway. While Netflix does not intend to include adverts, this is not the same as it not looking, or allowing producers to look at, different revenue streams. One of the most obvious is product placement in the films and series it commissions.
In series like "Stranger Things" and films like "To All the Boys I've Loved Before," Netflix partners with household names like Coca-Cola and Subway through novel marketing tie-ins and merchandising deals.
Next on the menu could be increased in-viewing product placement, which generated US$20.6 billion in revenues across, films, TV shows and music videos in 2019.
Companies are busy working on solutions that could increase that. One example is the UK company Mirriad. While still early in the process, the company’s products could enable advertisers to add products to films and tv series (want your product to appear on the drinks rack in Rick's Cafe in Casablanca? Now it can).
US-based Ryff takes that one step further. The company’s technology enables product placement targeted at individuals and changes depending on who is watching.
Hunt for new revenue streams
Other start-ups and scaleups are also using technology to disrupt parts of the media space. The list includes LargoAI, a Swiss start-up behind a data-driven solution that underpins every step of filmmaking, including predicting audience responses. Another is Filmarket Hub, a Spanish start-up that wants to ease film production by streamlining finding production companies, TV broadcasts, VOD platforms, sale agents and distributors. Others again, like UK’s Mubi, are looking to deliver more qualitatively curated alternatives to Netflix’ and Amazon’s infinite content lists.
As media companies consolidate, they often need to add revenue or cut costs to finance M&A. The answer might be making more acquisitions of the likes of the companies above – which is one of the reasons we expect to see increased M&A activity in the space.
Longer term, the question arises of where media companies will look to distinguish and heighten the appeal of their portfolios. In other words, where does a Disney or Netflix head.