Con­sol­id­a­tion – what does the fu­ture hold?

October 2018

This article summarises a panel discussion at the CMS annual Technology, Media and Communications conference 2018.

It seems that there has never been a more active period for consolidation in the world of global telecoms and media than today.

In the past few months alone three “mega deals” at various stages of completion are helping to reshape the global media landscape. Most notable, of course, is the recent fiercely fought auction battle between Comcast and Disney and 21st Century Fox for control of Sky, the European satellite broadcaster. In a deal involving some of the biggest figures in media, Comcast, the US cable giant, ultimately won the day with a knock out bid, valuing Sky at $39 billion.

The closely-contested auction came after Disney agreed to buy most of 21st Century Fox’s TV and movie entertainment assets for $71 billion – paying a purchase price far higher than initially expected after Comcast unsuccessfully tried to gate crash that deal. Meanwhile, in May, AT&T closed its deal to vertically integrate its TV distribution and mobile businesses with Time Warner’s content business, including HBO and media franchises like Harry Potter. 

Much of the recent consolidation in the US is being driven by the market disruption caused by “over the top” (OTT) players, such as Netflix and Amazon, and the growing trend for consumers to “cord cut” their paid cable television subscriptions in favour of a “portfolio” of viewing platforms. 

At the recent TMC conference in London, Tom Betts, director of corporate strategy, merger & acquisitions at ITV, commented it has been one of the busiest periods of consolidation ever seen with many traditional media owners and some telecommunications companies seeking defensive mergers, adding: “There is a trend towards more vertical integration between distributors and content owners. We have long espoused over here the virtues of our Integrated Producer Broadcaster, or IPB, which allows us to control our own intellectual property on our own network. It means we are not held to ransom when we have a success, like Love Island.”

However, Mr Betts says that, while the main driver for consolidation in the US may be cord cutting, in the UK and Europe there are different dynamics at play. “In the UK, the market is very different as you have a massive market intervention in the form of the [licence-fee funded] BBC and the advertising and commercial sector is structured differently,” he explains. “ITV in market share terms still owns more than the advertising share of NBC, ABC, Fox and CBS combined so there is a real difference there…We actually see [OTT players] as a huge opportunity for our ITV Studios business and in the US, Netflix is already our biggest customer.”

Janice Hughes, CBE, co-founder and director of Redshift Strategy, an Artificial Intelligence and strategy consultancy group, agrees and says that across Europe the media industry is being driven by different ecosystems, mixed markets and consumer demand. She says, for example, that while the “UK eco-system is amazing as it is good at both local and global content”, the Italian market, once home to a thriving movie industry, has been heavily impacted by the arrival of Netflix and Facebook Watch with some local companies struggling to sustain their traditional customers. “We do a lot of work with the European Broadcasting Union in Switzerland working with all these smaller broadcasters and they do have to work out who they want to be,” she says: “They have to decide if they can produce really interesting local content that Netflix is not going to do…and strategically they have to really focus on engagement with their viewers.”

But it is not just the smaller media companies having to decide what the future holds for them. Giles Rowbotham, vice president, senior corporate counsel at Liberty Global, says the US media and telecoms giant, now sees itself more as a “content aggregator” than a “content producer”. “On our platform in the UK – Virgin Media- you can subscribe for not just Sky Sports but also BT sports. We offer Sky movies but also Netflix,” he says. “We have not seen the cord cutting that we have seen in the US in Europe yet and our statistics show if you are a Netflix subscriber on our platform you spend more on Video On Demand (VOD) and generally watch more TV so you are a good customer. We want to embrace the OTT players on our platform.”

At a time of such consolidation, is scale clearly all that matters in the world of media and telecoms?

ITV’s Mr Betts says “scale for scale’s sake in content doesn’t work” because many of the individual buyer/seller relationships between broadcasters and individual producers remain the same as they ever were. But having a big network of connected intellectual property owners in multiple geographies can be beneficial as formats can be imported and exported across the group, while talent retention is easier, and there are scale benefits in distribution. He adds that scale does not automatically mean greater expenditure by broadcasters on content either: “Our [ITV Network] programme budget is £1.1 billion and it has been at that level for the last ten years but it is how you spend it that is important.”

For many companies, however, in order to compete scale is important and creating it may require innovative new thinking. Sir Howard Stringer, a former chief executive of Sony Corporation, is working on a commissioning club, Atrium to help smaller telecoms companies and other operators better compete with Netflix.

Victoria Gaskell, global co-head of media at CMS, says the current trend for consolidation is unlikely to end soon as companies face challenges of raising capital to invest in content or next generation networks. Many media companies are also still relatively small when compared to the likes of US giants Amazon or Google: “If I was a chief executive of a large media company I would be concerned about what those guys are going to do next,” she says. “They are much better able to invest and raise capital and how long will it be till they make a serious play in the market?”

Authors

Victoria Gaskell
Victoria Gaskell
Partner
London