All hail the coming of the world’s third big online streaming giant: Warnermedia’s merger with Discovery is upon us. Consolidation in this business is good for the couch potato, and there will be more of it to go around, globally. As a media entrepreneur, I can’t help but get excited with this action unfolding before my eyes.
Consumers worldwide were already complaining about having to subscribe to multiple services on multiple platforms to get the content that they want to watch. Somehow, no service ever seems to have enough to satisfy all. What makes this market even more complex is that its transition from cable, direct-to-home, internet protocol TV and other hardware-heavy linear delivery platforms to on-demand streaming via apps is far from complete. There are very few customers willing to subscribe to a whole bunch of content apps and devices at the same time. Consolidation will continue to be the driving force behind this shift to non-linear delivery. Disney+ has crossed 100 million subscribers in a little over a year. Most of that probably came from conversion of its existing cable subscribers into streaming ones. Disney has been shutting down its traditional pay TV services in various regions around the world. Its Southeast Asian feed is the latest one scheduled to go dark later this year. As this progresses, fans of Disney, Fox and Star content would have to migrate to Disney+ and Hotstar services.
Warnermedia’s HBO Max and Discovery’s streaming service together now have 60 million-plus subscribers. Discovery’s chief David Zaslav, who is to lead the new merged entity, has announced that he’s already set his sights on a subscriber base of 400 million. While no paid streaming service in the world has reached even half that number of subscribers, much of this planned growth is likely to be driven by the conversion of DC, Warner Bros, HBO, CNN, Cartoon Network, Adult Swim, TNT, HGTV, Discovery, Oprah’s OWN, Food Network and others’ individual cable subscribers and fans. No other company in the world can roll such a vast variety of content into one package. This should please consumers.
The market itself will continue to pivot in this direction. Wider content selection from robust combined libraries under a few brands and services will define the future of content consumption. Delivering this same experience through just licensed content is challenging. Back in 2011, Starz refused to renew its licensing deal with Netflix. More recently, both Netflix and Amazon have had the same challenge in India, where major media houses locked up their premium content for their own use. Except for the odd tactical licensing deal, they are having to create content from scratch (or storyboards), by engaging directly with production houses. Both these companies now spend billions of dollars on content worldwide, the kind on which no one can cancel licensing deals. Amazon is already in discussions for a potential MGM acquisition.
US telecom major AT&T’s 2018 acquisition of Time-Warner was approved by authorities despite the best efforts of an allegedly partisan US Department of Justice under former President Donald Trump. AT&T justified its $85 billion purchase saying that it wanted more people to use more data. Detractors argued that it could potentially block or slow down third-party services that compete for eyeballs on the same broadband network. After all, this was playing out after the US Federal Communications Commission had repealed net neutrality in the US, just months before the AT&T-Time-Warner merger’s completion. Most doomsday arguments failed to take into account that owning a library of content did not mean that the telecom major would constrict its core business of selling data through its e-pipes. Besides, without major consolidation, it is highly unlikely that one service can satisfy all the content needs of everybody.
Many of those for and against arguments still hold true, depending on where and what media landscapes we are talking about. While big-ticket mergers of global players are still playing out, the stage is only being set for regional candidates around the world. In large parts of emerging Asia, linear TV is still the main deliverer of entertainment. But that’s only because of a lack of data reach. Content, technology and telecom company combinations could dramatically change how the multitudes in emerging economies consume content. There are no mistakes in business, only lessons to be learnt. We’ve already seen a pretty colourful palette of deal possibilities.
In hindsight, the nascent HBO Max platform didn’t justify the price AT&T paid. The telecom major took on a huge amount of debt at a time when its priorities included building expensive fibre-optic and 5G networks. Its acquisition logic was perhaps flawed in parts, and in its endeavour to add Warnermedia to its stable, AT&T stepped on its shareholders. This week’s reversal deal, though, along with its $43 billion cash plus debt securities, could now relieve its shareholders even as it serves customers well. AT&T will remain the largest shareholder of the new media giant. And I expect the new entity to keep us riveted with its moves.