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We are not far from the worst of the pandemic, which halted content production and pushed streaming services to the center of global media operations. Now, with the merger of Warner Media and Discovery and Amazon’s acquisition of the venerable MGM, all bets are on how the market will reconfigure next. What can Netflix do to maintain its momentum and will other US incumbents make their own moves?
Here, Barclays’ Tom Dods assesses the state of play and predicts what could happen next.
Discovery of Warner Bros.
The merger of AT & T’s Warner Media assets with Discovery creates a media juggernaut. The proposed company will have higher revenues than Netflix and will be the second largest media company in the world, behind Disney.
It creates arguably the most comprehensive IP catalog of any media company, combining thousands of WB movies, HBO classics like The Sopranos and Games of Thrones with a slew of popular unscripted formats – all very compelling.
Its creation means that AT&T will “separate†its Warner assets just three years after acquiring them. The telecommunications giant will instead focus on its 5G network, which it says will deliver more shareholder value (its share price has been stable for some time, lagging behind other big tech companies).
A key theme in the media landscape a few years ago was the purchase of media assets by telecommunications companies. The strategy was to integrate vertically to combat the disruption to their business models caused by streamers. Now it looks like it didn’t work out as expected, with carriers unable to understand and therefore monetize the content they purchased.
Verizon wasted billions of dollars acquiring and then abandoning Yahoo. AT&T will likely lose money somewhere, with the formation of Warner Bros. Discovery. It also rocked Hollywood by moving all of Warner 2021’s releases to the HBO Max streaming platform, alongside the cinematic release. Closer to home, BT wants to sell a stake in its BT Sports business.
We are now seeing a consolidation of old media, fighting back in a world where the future will be in streaming. The merger excludes Netflix from even more valuable intellectual property, which it had previously used to grow its subscriber base.
Given the size and breadth of the catalog and Warner Bros. global ambitions. Discovery, could it be that it will become Netflix’s real competitor, instead of Disney, whose foray into subscription streaming has been a huge success to date.
Warner Bros. Discovery will want to keep its IP internally. This should be of concern to Sky – the UK pay-TV broadcaster has a long-term distribution deal with WarnerMedia that prevents HBO Max from expanding in the UK and is unlikely to be renewed when it expires in 2025.
Amazon and MGM
Amazon’s acquisition of MGM is certainly a deal for our time. 25-year-old online retailer paid an aggressive $ 8.5bn (£ 6bn) for a 100-year-old movie studio to get content it can use for us sell more batteries and toilet paper (with same day or next day delivery!).
MGM has a decent catalog of Hollywood movies and TV shows, all of which will be exclusive to Amazon Prime Video. There are franchises such as Robocop, Rocky, and Tomb Raider that can be retooled for new audiences, but Bond – the jewel in the MGM crown – is actually a joint venture with Bond producer Eon, so an “extended Bond universe” in the form of Marvel or Star Wars is unlikely.
Amazon is paying too much for this asset, but the strategy is clear: to own sufficient amounts of exclusive content to keep consumers on Prime and exclude it from any competitor.
Amazon can afford to perform overpriced mergers and acquisitions like no other company – it has an extremely patient investor base, which has tolerated (and encouraged) growth over earnings for decades. This acquisition will hardly affect the bottom line.
What’s next for mergers and acquisitions?
The biggest media companies are still eclipsed by the Big Four digital giants when it comes to market value and Comcast and Lionsgate will feel vulnerable after the announcement of the Warner Bros. deals. Discovery and Amazon-MGM.
To be a leader in the content market today, a business needs a direct relationship with the consumer, a solid catalog, an even larger balance sheet, and the ability and ambition to grow at home. ‘foreign.
Amazon is clearly increasing its content spending and looking to build a large media network. In no time, Netflix has gone from incumbent to incumbent, but will continue to push for sustainable growth.
I predict a wave of mergers and acquisitions as media companies try to catch up.
- Tom Dods is Director of Relations, Technology, Media and Telecommunications at Barclays. Please contact him on +44 (0) 7766 364 337 or send him an email here
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