MediaTech Radar is a monthly newsletter put together by IABM’s Head of Knowledge Lorenzo Zanni. It focuses on a spotlight topic in MediaTech and reflects on a series of past, present, and future business developments in the industry. In this edition, our spotlight topic is Media M&A.
MediaTech Spotlight: Media M&A
A spotlight topic in MediaTech.
- As mentioned in my previous newsletter, M&A activity in the media industry is expected to significantly increase in 2024 despite difficult economic conditions, including higher interest rates. The impact of the rising pressure on streaming business models and the Hollywood strikes in 2023 have been leading industry players to consider consolidation despite an uncertain business environment.
- Most players that launched streaming services to compete with Netflix have found themselves in dire straits in 2023, particularly as investors pivoted their focus from subscriber growth to profitability. Most streaming services – aside from Netflix, ironically – remain unprofitable and have taken difficult paths to reach profitability through a series of cost reduction initiatives. This seems to not have been enough to weather the storm.
- In December 2023, rumors of a mega merger between Warner Bros Discovery (WBD) and Paramount Global first emerged. The two players have been grappling with loss-making streaming operations, underperforming linear businesses as well as mounting debt piles to finance their moves to DTC – in an unfavorable macroeconomic environment. Paramount’s owner is rumored to want a sale while WBD’s CEO David Zaslav said at the company’s Q3 2023 earnings call that there were a lot of “excess players” in the market, which suggests a potential move by the company soon.
- At the start of January 2024, WBD made its first move, acquiring Turkish streamer BluTV. Other significant deals happened between December 2023 and January 2024. For example, RTL sold its Dutch TV and streaming business to DPG Media for €1.1bn in December while Lionsgate acquired eOne for $375m in January. In February, Disney, WBD and Fox joined forces to launch a joint streaming service in a landmark deal, aggregating their respective linear sports offerings.
- These are not small deals and signal a potential reshuffling of the media ecosystem in 2024. Predicting what the future ecosystem will look like is extremely difficult though I can see both production and distribution being affected by consolidation due to the drivers and signs mentioned above – see this as an example of pressure on the UK independent film sector.
- Consolidation is a big deal for technology investment too, as it often results in lower overall spending due to synergies between customers as well as a decrease in the number of opportunities for MediaTech businesses – these opportunities do however get bigger. Further consolidation in the media business should have a plethora of effects, including increasing M&A activity in MediaTech in response to this trend (we have already seen some signs of further supply-side M&A, see this as a recent example) as well as a rising number of MediaTech businesses pivoting to non-media industries.
- Is further consolidation really the answer to the industry’s challenges? The sector tried this before (multiple times) though, perhaps, there was just not enough consolidation? I am not too convinced that consolidation will be the main driver of future growth in the industry – let me know if you have any thoughts on this matter. Despite my doubts on this, consolidation should become a top trend to watch for in 2024.
MediaTech Watchlist: Netflix/WWE, Layoffs, CES 2024, and more…
A watchlist of selected past, present and future business developments in MediaTech.
- In a flagship development in the streaming wars, Netflix agreed a $5bn deal with WWE to stream its wrestling shows for a decade, starting in January 2025. The deal is so far limited to North and Latin America.
- This is an interesting deal for various reasons. Firstly, Netflix has now joined the group of streamers that have invested in live sports despite being late in this race and dismissing its interest in the genre multiple times in the last few years – does this mean that live content is now an essential weapon in a streamer’s arsenal? Secondly, wrestling is a hybrid between sports and entertainment, which fits well with Netflix’s inclination to tell stories around sports – something we have seen more of recently. Thirdly, and perhaps most importantly, WWE’s content slate will enable Netflix to stream new live content every week – in the last newsletter, we talked about the importance of constantly refreshing content pipelines for streaming platforms in relation to Netflix’s release of its first Engagement Report.
- This deal also means that Netflix has one year to develop technology to live stream WWE’s content – this is no easy feat. How this content will be monetized remains to be seen though we can argue that the streamer will probably leverage advertising.
- Another wave of tech layoffs took place in January 2024 as companies such as Google and Amazon decided to let go thousands of employees. According to the tracker fyi, layoffs in the tech industry in 2023 were 262,582 – up by 59% from the 2022 figure. We should expect consolidation to affect this trend as well, as evidenced by this example.
- At Amazon, the layoffs focused on its media divisions, including Twitch (35% of the streamer’s staff was cut), Audible, Amazon Prime Video and MGM Studios. Their supposed aim is to alleviate the profit losses that Amazon’s entertainment divisions are experiencing, consistent with the entertainment market pivoting from growth to profitability, as mentioned earlier. Analysts attributed Google’s layoffs to various reasons, including an increasing focus on GenAI at the expense of other areas.
- A recent World Economic Forum survey has found that a quarter of CEOs worldwide expect that Gen AI will lead to job cuts of at least 5% this year (FT, requires subscription), with media & entertainment topping the list of industries predicted to be impacted by the technology.
- CES 2024 took place last month in Las Vegas. It delivered over 135,000 attendees and 4,000 vendors, continuing its significant improvement from its 2022 figures and up from 115,000 in 2023. Attendance was, however, still lower than the 171,000 people it attracted in 2020, right before the arrival of the pandemic.
- Sony called off its $10bn merger with Zee Entertainment in India in January (FT, requires subscription). Sony’s issues with the merger included an investigation into fraud allegations against Punit Goenka, Zee’s CEO, and Zee’s financial performance which had been negatively affected by rising streaming costs and slower advertising revenue growth.
Thank you for reading this newsletter. If there are topics you would like me to cover or have information/ideas you’d like to share, please get in touch with us.
Lorenzo Zanni
Head of Knowledge
IABM
