THB #522: Merging More To Acquire Less?
Beware unintended consequences.
The entertainment industry has changed.
No one would really argue with that notion.
But the endless efforts to predict the future are almost terminally stuck in the past.
What do most “experts” have to say about the Streaming world? There will be 3 or 4 major players and everyone else will either get sucked into their gravitational pull or disappear.
We have spent the last 50+ years with 3 major television networks with a 4th added in 1987. So is it just a conicidence that the vision for our future in Streaming looks almost identical?
Every conversation about mergers & acquisition is loaded down with strings that can be so complicated that even the companies are not clear on them before completing due diligence.
These are like episodes of Dr. Pimple Popper or Botched, where they are trying to remove a growth without leaving to much of a scar, but they aren’t always sure what the result of cutting this or that could mean until they are mid-surgery and covering in blood. And this is mostly just removing stuff. In Hollywood, the idea is that the removed pieces will be able to go on living with some degree of health.
As it keeps coming up, the idea of an acquisition of Paramount Global by Comcast is endlessly complex and conflicted.
Start with the television side. Just on production, you are looking at merging 2 of the 4 most prolific producers of content - not just for their connected distributors, but for the entire industry. How could this be a positive step for the industry overall?
Moving on to the television networks, CBS and NBC. Again, 2 of the 3 top broadcast platforms and certainly, 2 of the Top 4 television distribution networks. How could this be a positive step for the industry overall?
And while we are in broadcast land… what about merging 2 of the Top 5 (if not Top 3) broadcast news outlets in the world? News is already under profound budgetary pressure and a lot of sharing between organizations. Does CBS News (presuming) become just a brand?
Streaming… Peacock and Paramount+. Almost 100 million subs between them, both in the Top 6. But that’s not the problem… just as it wasn’t the issue with anyone but Disney buying Hulu. It’s the content, stupid!
One of the most significant engines for streaming subs for Paramount+ and Peacock is network programming, delayed by a day. Both promote sports, including the major sporting leagues in the U.S., based on their connectivity with their current broadcast siblings. Both have tried airing streaming-first programming on their broadcast nets as well. And both have a history of using their cable channels to create broad platforms for major events, like the Olympics.
The clever idea of Hulu. back in the day, was that all the major networks would have one platform for the 1st step of reruns (also, a way to screw the unions… but a different conversation). This is was also a differentiator between streaming and the theatrical film model, which ran its 1st step of post-theatrical (aside from physical media) through premium cable networks.
Those lines have broken down completely. ABC and Disney Cable reruns on Hulu… NBC on Peacock… CBS on Paramount+. Initially. The movie side distributes to its own platforms for Pay-One in all 3 cases, with Sony called “an arms dealer” and Warner Bros invested much as the other 3 legacy majors are, in their MAX. Netflix remains Netflix and Amazon remains ambivalent. Apple is on its own track of a much more boutique nature.
But if you merge Peacock and Paramount+, what do you get? You’re closing in on a chosen tri-opoly, no? Netflix, Disney, UniPar? Warner Bros Discovery and Sony Pictures/TV could continue as “arms dealers” and perhaps as stand-alones within a small boutique window. But The Big 3 of that future (or probably any future) would have to be at least $20 a pop per month with commercials and $40 a month without (if they offer that). That wouldn’t leave a lot of room for anyone else. Maybe a $15/$30 MAX with CNN could have a sub base of half of the paying domestic households. A $40 a month, the ESPN standalone might work for some. Will Fox News exist in 15 years?
Meanwhile, what is happening on the Broadcast side? What happens to affiliates in a consolidation of 2 major broadcast networks? Affiliates are a big part of the financial picture. What happens to cable overall? Comcast has already shown a tendency to eliminate superfluous cable brands. What happens to the value of local television stations? What happens to free broadcast television and how does the government feel about the answer?
How does “the acquired company” come out of this? Let’s say that the financial realities and the FCC “allow” a company like Paramount to be split up into pieces to be sold off. How does that work? Is the library encumbered? By the new streaming aquirer or by the new movie studio owner? If CBS needs to be spun off to another company so as not to conflict with NBC or to disappear altogether, what Paramount assets do they get on the way out the door? Does CBS News go with it? Are there any protection for the low-revenue news division? Does the movie studio have any ties to the streamer for their new movies or do they just do whatever post-theatrical deals they like (or direct-to-streaming)? What is the value of Paramount+ if its assets are not attached to that purchase segment?
Would Comcast, if they acquired Paramount, even want a 2nd broadcast network if the door was wide open? Would 2 be as good as 1?
All 4 major broadcast networks are currently anchored/invested in the very expensive NFL. Would Comcast want that much more football inventory in a CBS acquisition? Would they try to hold onto Sunday Night Football while selling off the rest of CBS?
What about those partners? In the case of the NFL, do their deals with CBS (1/2 of Sunday daytime games and the Super Bowl every 4 years) or NBC (Sunday Night Football and the Super Bowl every 4 years) just move into a new organization without the NFL having anything to say? On a similar note, doesn’t the NFL have a say in Disney spinning of ESPN as a standalone (not the 3-headed monster currently being discussed)?
On the production side, we have the example of Disney acquiring Fox, where the bigger, more powerful Fox television division pretty much ate the Disney television division. Disney, as you know, didn’t buy FOX or Fox News, so that part wasn’t a problem. But how much money comes into the combined Fox/Disney television business now than when the 2 were separate? I don’t have a way to get that math, but I have to assume that they are making and selling fewer shows overall. Are we ready to do this again?
Jobs are another major issue… though as unkind as it seems, one could argue that if jobs could be cut and have the work of these companies continue apace, the businesses would be better served by being smaller… as the industry gets smaller and smaller.
There are arguments as to why consolidation would be better. But they are mostly about saving with a smaller workforce and fewer parking spaces needed. Is there any way that M&A would make the world better for consumers. And really, would they seriously benefit the acquiring companies?
If 2 major studios merged, we could see a world split by those who can afford commercial-free and those who cannot. We will have eliminated 1/3rd of the need for a cable/satellite-style bundle, as the 2 major networks (ABC/NBC-CBS) and 3 major news sources (ABC/NBC-CBS/CNN) would presumably be on the Streamers.
And as the heat of change cooled, we would have less and less content… because The Norm of this new entertainment world order would become so standard that the pressure to avoid churn would be dissipated. You could choose to not be “off the world,” but if you wanted in - like 80%+ of the country does - you would spend your $100 a month and be connected to the biggest platforms. And once the tri-opoly was secure, the best way to raise profitability would, as ever, become spending less, not making more.
Until tomorrow…