Maybe I spent too much time on Wednesday’s essay. While I haven’t been working on it non-stop, I’ve been dabbling with it since December. Planning the next 12 years of mergers and acquisitions is fun. And time consuming.
That’s a lot of time, though, for a vague prediction of the future. Isn’t it a bit frivolous to decide, without any data really, how a bunch of companies could hypothetically merge in a potential future? That seems more fiction than fact.
But I don’t buy that. Beyond the fun, “Map of the Universe” I made—which is a pretty useful tool I’ll leverage in future articles—a strange hypothetical like this can often unlock ideas I wouldn’t have thought of via traditional means. And those ideas in some ways are more important than the exercise. Essentially, consider yesterday’s albeit hypothetical article the data set for today’s insights.
So we’ll start with those, after one quick diversion:
Behind the Scenes – This was harder than I thought.
For two reasons. First, getting the companies “right” meant a lot of moving around to find what seemed to fit (Apple and Disney; Comcast and Vivendi), what didn’t seem to fit (Google, Apple and Amazon merging, for one) and what capabilities filled what needs (Netflix and Facebook). So playing around with that took some time.
Second, it never ceases to amaze me how much more there is to learn about entertainment. This is an admission from someone who calls themselves, “the entertainment strategy guy”. But you can always overturn another rock and find a whole bunch of new stuff to read and discover. In this case, the foreign conglomerates were my biggest blindspot. I knew about Vivendi (thanks to an HBR Vivendi Universal case study), but didn’t know much about Endemol Shine, Entertainment One and Bertelsmann (in particular) beyond name recognition.
I’d also add, you forget that even with all the consolidation in this industry, there are a ton of players. In the last 15 years, there have been plenty of new entrants from A24 to STX to Relativity (that is also now gone).
Insight #1 – Europe is why this doesn’t happen.
After I’d assigned out all the American conglomerates, the missing piece was Europe. So I looked there to find the potential European champions, and ended up adding Vivendi and Bertelsmann, who I ended up lumping into Microsoft/Comcast/NBCUniversal and AT&T, respectively.
But this won’t happen.
Likely many of my proposed mergers never happen. But this is one of the bigger leaps of faith. Even if I see a world where antitrust enforcement all but evaporates in the US—and even there I don’t see that—Europe is already tacking in a different direction. Even if, as a recent Economist article pointed out, Europe is looking for “European champions”, that doesn’t mean they suddenly love media consolidation. It also really means they don’t want their media companies being swallowed by giant American media and tech companies. The EU has gone after Google, Apple, Netflix and Amazon in various ways, so I don’t see it happening. This exercise further reinforced that in my mind.
(I did debate joining Bertelsmann, Vivendi and ITV, with maybe others as the European company, who could then swoop in for Dish, AMC Networks and Discovery (Scripps), but again tried to limit it to the rule of 6. But I do really like that company. I may have to update the article now…)
Insight #2 – Companies still ended up with “weaknesses”.
Even in a world of six massive, super-mega-corporations, they each still had weaknesses. This result surprised me, even as I was the person deciding on the fake mergers. In this new world the following companies have the following weaknesses:
Disney-Apple: No cable, cellular or satellite distribution.
MCV-NBCU: No social
Google-Mart: Limited film or TV production
Facebook-Flix-Ify: No TV channels
AT&T All Media: Limited technology
Amazon would be the most well rounded, especially if they buy Twitter. Amazon is the only studio without one of the former “Big Six” studios, but between Lionsgate, CBS Films and Amazon Stuidios, this isn’t really a big weakness. Some years Lionsgate beats Paramount for box office. Still, it was interesting that as you build out mega-conglomerates, it is still really hard to own it all and dominate every field.
Insight #3 – Device carriage will become the new “retransmission fee”.
One conclusion I had that wasn’t in the initial prompt was for “device makers” to get heavily involved. Obviously, Apple buys Disney. Everyone predicts that. But then I paired Microsoft with Comcast-NBCU and Sony with Facebook. Amazon and Google already make devices.
I didn’t throw Samsung, LG or other device makers in here, but this did spur an idea, partly inspired by Apple news of last week. Essentially, to reach the most people, Apple needs to be on the most devices possible, so it is sharing iTunes on a lot of smart TVs. But they haven’t put their iTunes Store on Amazon devices yet. I speculated on Twitter Amazon will fight them on this and I don’t see iTunes on FireTVs anytime sooner. But then, if Amazon refused to let Apple on their devices, Apple could do the same thing in turn, dropping Prime Video from the app store.
In short, device wars!
Insight #4 – Device wars will be followed by transmission, content, and social wars.
It may not be just devices in the future, but all sorts of defensive wars.
In the last fifteen years or so, cable companies argued over transmission fees with the mega-studios over TV channels. This escalated after the Comcast and AT&T mergers, because those new companies could both negotiate for their channels and/or hold other TV channels hostage for better terms. But TV channels are going away.
So the transmission battles will move to a new front. A streaming service can already be held back by removing content—Disney/AT&T and Netflix—but the more serious way is to limit bandwidth via metering, which will happen when net neutrality disappears. That’s why the conglomerates will need to merge with cable companies. Essentially, it’s an arms race to say to opponents, “If you don’t meter me, we won’t meter you.” Devices will be a part of this battle, along with content and potentially even social platforms. (Imagine if you couldn’t share news about Bird Box?)
Biggest Leap of Faith – All regulation ends by 2024 period.
If I had to point to one reason why this “prediction” doesn’t happen—and to reiterate, I can’t predict the future—it’s the government. In two ways, regulation and antitrust.
Let’s start with the latter. The current lax antitrust regime—and by regime I mean going back to Reagan, including two Democratic presidents—may not last forever. The New Brandeisians have some data on their side and now some Democratic politicians. The inequality theme is also hurting traditional, price-only antitrust positions. If a candidate Warren becomes President Warren, I could see even a reversal of some of the big mergers of the last fifteen years, including Instagram from Facebook, AT&T and Time Warner and Comcast and NBC-Universal. Not that I’d predict that outcome, but I wouldn’t dismiss it outright.
As for regulation, obviously if there is a federal law saying movie studios can’t own theaters, movie studios can’t own theaters. At some point, a lot of this consolidation comes under the purview of the FCC. Currently, the FCC has a pro-business bent, mainly driven by the Trump administration. This could change in 2020 or 2024. Similarly, Congress may get involved with the big tech firms and data, since picking on Facebook is good for ratings.
Insight #5 – The Hardest Companies to Place: Dish (with Sling) and Discovery (with Scripps)
Dish with its subsidiary Sling was the hardest company to put in another super-conglomerate. With the “rule of six” being the rule I followed most, it just made the least sense to get Dish somewhere. I considered putting Dish with Apple-Disney, but I do think they could try to stay out of the communications business. Other potential homes included Google, Facebook and Amazon too. But again they had acquired other distribution platforms, and think the big tech firms are less willing to go in on a device (satellite) that is fundamentally not vital to the future of entertainment. Comcast was looking very likely, but with them buying Roku, they just didn’t really need Sling, the most valuable part of the deal.
That’s why I ultimately decided AT&T gets it at a discount, and merges it as best it can with DirecTV. Again, in a world where everyone is competing with everyone, AT&T would pitch this as not really limiting consumer choice. Moreover, they get sling, which is another way to go OTT and AT&T is trying to collect as many as it can.
Discovery (with Scripps) was another challenge. That is a huge amount of traditional cable channels. But what is the value of that as everything moves to streaming? Well, two possibilities. Possibility one, they aren’t valuable, and end up getting swallowed up by private equity money and milked for cash. Possibility two, though, vMVPDs are a thing and they have a second life pushing their reality content out into the world. The biggest hold back is that they still don’t produce a lot of their content, which doesn’t give them a library to sell. (If I understand their financing.) So they eventually join Youtube/Google-Mart, but the fit isn’t perfect.
Here’s my rough ranking on the perceived power and ability to generate free cash flow of the companies.
- Amazon Super Prime
- AT&T All-Media
Don’t ask me to datify it though.
Insight #6 – I should have made a Chinese Mega-Conglomerate
The building block pieces were there for this too, with Dalian Wanda/The Wanda Group as a starting point. They own theaters and Legendary, so they could just start snatching pieces up and eventually be a powerful conglomerate. That said, in the last two years, they’ve pulled back from foreign ownership and tried to sell assets.
The additional problem was I couldn’t get the “math”—meaning my gut feelings—to ever get it to work. That Chinese company couldn’t own TV networks in the US, and as the Huawei investigations/T-Mobile-Sprint mergers have shown, there are enough forces in the US looking to stop foreign encroachment, especially Chinese, that any proposed mergers wouldn’t go through. Now, a Chinese company could rise, just based only in China. Like Tencent—who may already be a mega-conglomeration—but I don’t know enough about that market specifically.
Behind the Scenes – Why I didn’t include publishing, digital or podcasting
Podcasting was left out because it is a $500 million dollar revenue sub-field right now. This isn’t meant to be derogatory. If you’re a personality making a living out of podcasting, that’s a great business. Don’t let tech VCs tell you that you’re only successful if you’re a unicorn. But that’s what podcasting is right now, a $500 million industry with lots of individuals launching careers. So I left out the podcasting companies.
I also left out what I vaguely termed “digital” and “publishing”. Those fields have very low barriers to entry, so they have a lot of players going in and out and disappearing. I also left out some streaming video (Quibi, DailyMotion, dozens of others) and streaming music (Tidal and who nows how many others) again because of the massive churn.
Insight #7 – No one bought a sports league.
Well, technically AT&T bought UFC when they acquired WME-IMG. (Which is definitely more groundbreaking than I made it seem. There are California laws against agencies being owned by studios, but, again, no regulation.) But the EPL, NFL, NBA, MLB, NHL and all others remain their own entities.
Relooking at this decision, this makes sense. The owners are extremely powerful and like being their own bosses, bestowing their content on the companies below them, but only after being courted and feted and ultimately given huge paychecks. I don’t see why this would change even in a consolidated future.
Last Insight – Viacom and CBS Merger is the starting point and biggest variable.
The one thing all articles agree on is that Viacom and CBS are the next company that needs to decide what it is doing. CBS’s old boss didn’t want to merge, but he’s gone. Share Redstone—the owner of both companies in a true, only in America story—does. But like I said, if she gets a big enough offer for CBS, Paramount or Viacom, she wouldn’t pass on that.
So as others have predicted, this is the next domino to watch.