Stepping up to the tectonic plate in the battle against Netflix and Disney
Raymond Snoddy studies the shifting sands of media ownership and what it could all mean for UK and European public service broadcasters
The tectonic plates of the media are moving in dramatic fashion before our eyes.
It’s as if multi-billion dollar corporate experiments are happening in real-time, as communications giant AT&T orchestrates the bringing together of WarnerMedia and Discovery as a separate company, while Amazon apparently negotiates to buy MGM Studios.
At the same time, albeit on a different scale, the two leading French commercial television stations, M6 and TF1 are planning to merge.
It’s almost as if the big beasts are writing a primer on what the future of media is going to be.
A number of fundamental trends are off and running, some of them contradictory, and going in the opposite direction to what was considered conventional wisdom only a couple of years ago.
The brief era when telecommunication companies thought they could become integrated communication, distribution, and media companies looks as good as over.
This variant in the corporate integration playbook always looked a little odd. The people were different, their skills appeared incompatible and the true, rather than superficial, synergies far from obvious.
AT&T has already begun winding down its stake in DirectTV, while Verizon pulled out of the content business with the sale of Yahoo and AOL.
Nearer to home, BT is going for the same reverse ferret as it seeks options for the future of BT Sport, the usual code for putting the business up for sale.
All three telecom groups are placing their chips on the expansion of their mobile and broadband businesses, and the reduction of debt from the sale, or separation of their media businesses.
The biggest trend is of course the consolidation of content owners so that they are in a better position to compete against Netflix and Disney. That's the main driver behind the merger of WarnerMedia and Discovery.
The deal, unless a jealous rival tries to gatecrash the party at a late stage, will create the second largest media business in the world by revenue and be led by Discovery’s David Zaslav.
It will bring together all the entertainment businesses of WarnerMedia, ranging from Warner Bros film and television studios, to HBO and cable channels such as CNN, with the lower cost factual sport, wildlife and lifestyle programming of Discovery.
The new company, which could well be called Warner Discovery, could create a well-balanced mix of channels and programmes.
More than $3 billion a year is likely saved in “synergies,” the usual merger euphemisms for people losing their jobs.
Some sunk costs will have to be absorbed, such as those involved in launching separate streaming services, but those will be judged worth it in the battle against Netflix and Disney.
The merger will give WarnerMedia a serious shot at moving up from being the fourth largest streaming group after Netflix with 208 million subscribers, the rather different Amazon business with more than 200 million, and Disney + which has shot up to 104 million in a mere 18 months.
There is some way to go. At the moment HBO and HBO Max have more than 64 million subscribers worldwide, while Discovery said recently it had more than 15 million.
With four major players bestriding the world of streaming it becomes increasingly difficult to see how much impact other players can prosper, unless they are occupying culturally significant niche slots, such as Britbox.
The main Monopoly players have already got their hands on the prime real-estate, from Mayfair and Park Lane to Regent Street, Oxford Street and Bond Street.
The scale of the merger emphasises just how smart Rupert Murdoch was in realising he could not ultimately swim in such shark-infested entertainment waters when he cashed in his huge pile of chips.
At the very edges of the new WarnerDiscovery empire there is one additional wrinkle.
Will the company that owns CNN be all that enamoured with a stake in Andrew Neil’s GBTV in the UK, which is expected to march to a right-of-centre drumbeat?
Presumably, the Discovery slice of the £60 million fundraising for the new channel is already committed, but should it have to come back for more, it might not be forthcoming from WarnerDiscovery.
The Amazon $9 billion bid for MGM Studios with its vast library of films and television is easier to explain.
The on-line retailer has long signalled its intent to get into the entertainment business as an encouragement to attract and keep subscribers to its Prime delivery service.
Amazon claims that the vast majority of its 200 million Prime subscribers have accessed its media content at some time.
The move beyond retail started with sport- first tennis and then football- and it would hardly be surprising if Amazon was also to emerge as a bidder for BT Sport - with current football rights deals rolling over at the same price because of the pandemic.
An acquisition of MGM, if the talks are confirmed, would take Amazon into the media's premier league.
If you are sitting in the middle of Netflix, with its pile of debt and increasing dependence on expensive original content, it must seem as if your rivals have finally woken up and really are now out to get you.
WarnerDiscovery and Disney with their historic entertainment franchises, and Amazon in its different way, could all out-gun Netflix in the battle of original programming if they chose to do so.
The collateral damage to public service broadcasters around Europe could be considerable, as competition for eyeballs will inevitably increase.
They will need sympathetic governments who understand that the sheer scale of American internationalised competition makes the survival of national public service broadcasters more important not less. Alas it does not look like the administration of Boris Johnson is one of those.
In this context, the merger of M6 and TF1 in France seems like an afterthought, but actually isn’t.
As the American giants gather for plunder, European broadcasters must go for maximum co-operation and, in some cases where appropriate, go for merger.
There have been rumours of bids for ITV for years, and nothing has happened, partly because of large pension obligations.
But times, they are a changing – and very rapidly too.
Could it be that the next consolidation, in Europe at least, is a move by Channel 5's owner, ViacomCBS for ITV?