The next tectonic shifts in the media & entertainment industry
The past couple of years seem like a never ceasing flow of news in the media/entertainment space of newly launched content and distribution ventures, fueled by an incessant public appetite for streaming. The digital space’s large continents—such as Google, Amazon, Apple and Facebook—are all making big content plays and mixing production as well as distribution clout. The “artificial” boundaries stemming from the 19th and 20th centuries are being “blown to bits” by the digitization of our world, a phenomenon that accelerated a couple of decades ago. This process is speeding up the transformation of the current distribution system.
The following predictions are personal opinions based on strategy analysis and factual information. They are not derived from any direct conversation with the media groups and integrated telcos mentioned in this article.
Cable bundles will continue to bleed out and give way to a version of à la carte which will upend the model for the current “golden age of TV”
A new tectonic shift shook the media and entertainment industry on March 9, 2015: HBO Now was announced four weeks before the start of the new season of Game of Thrones. The standalone subscription service is to be initially launched with Apple as an exclusive partner for US$14.99 monthly. It’s the first time a premium channel such as HBO is being decoupled from a cable bundle, and it was quickly followed by Les Moonves’ public acknowledgement that Showtime will also go OTT in the near feature.
In an interesting twist, NYC-based cable company Cablevision announced on March 16 that it would become the first integrated player to allow its Internet service subscribers to purchase HBO Now. Showtime will most certainly go to market before the end of the year and be followed by Starz. Once that happens, the main premium TV channels will be available to the public without it being necessary to subscribe to a cable bundle. On March 17, the Wall Street Journal reported that Apple is working on a “skinny bundle” with the major broadcasters to deliver 25 to 30 channels for US$30–40 per month. If you add to the mix the arrival of Dish Network’s Sling TV that streams live TV channels over the Internet, cable bundles averaging US$100/month are no longer the only games in town.
These “skinny bundles” and à la carte options will undoubtedly reshape the industry by enabling it to allocate high-level budgets to event series precisely because of the economics of bundles. It is safe to say that lower-priced bundles and à la carte options will trickle down to these budgets and could impact them in the same way that independent film budgets have been impacted.
- À la carte pricing will initially go mainstream in Canada
On March 19, the CRTC issued an expected ruling ordering the industry to implement a “skinny bundle” priced at $25 per month. This is a momentous decision that will have lasting impact on the landscape of Canada’s entertainment industry. The unbundling-decoupling of premium TV channels such as HBO Canada and TMN is going to be an interesting experiment to monitor, alongside HBO Now’s launch in the US. This decision and the previous one relaxing Canadian content rules could have deep repercussions on the Canadian production environment.
- One of the large integrated cable/content businesses in Canada will be split up and the cable/telco portion will be bought by either AT&T or Verizon
The historic links between US and Canadian telecommunications companies run deep. It’s only in 2004 that AT&T sold its then 34% stake in what was long known as Rogers AT&T Wireless. There have been persistent rumors indicating that one of Canada’s main integrated telco/TV groups is potentially looking for an exit, which logically could come from our American neighbours.
Both AT&T and Verizon are all that remain of the breakup of the Bell conglomerate ordered by the US Supreme Court. Both companies are looking for growth opportunities outside their borders. It would be logical for AT&T and Verizon to look at opportunities in Canada. This scenario’s tricky part is the integration of telco/Internet access businesses with TV content divisions as many restrictions apply to foreign ownership.
The latest CRTC decisions relaxing rules on Canadian content for licensed broadcasters could perhaps signal a reconsideration of foreign ownership restrictions. The decoupling of the telco/Internet business from the licensed broadcast business could be another method to pave the way to one or several potential partnerships with a US telco.
- Vivendi’s Vincent Bolloré will make a large content play in North America, potentially acquiring AMC/BBC America from the Dolan family
Paris-based Vivendi has significantly reshuffled its portfolio over the last 2 years, having sold over 20 billion Euros worth in assets. The ascent of Vincent Bolloré as chairman and key shareholder spells a new era for the entertainment group, armed with a huge war chest. The Canal+ TV business and the Studio Canal distribution arm are both performing well and gaining ground in international markets. Canal+ TV series are being exported to broadcasters worldwide and via Netflix. The critically acclaimed series Les Revenants/The Departed was adapted for the US market and began airing on March 9.
The internationalization of Vivendi’s TV business could accelerate with a push into the North American market in the form of a large acquisition. AMC Networks (a 2011 spin-off of Cablevision) is an obvious target because of its relatively low market capitalization of US$5.4 billion and the attractiveness of its joint venture with BBC in the BBC America network.
- An Asian content & distribution player will also attempt to acquire a large North American business, possibly Lionsgate
On March 11, Snapchat announced that Alibaba, the leading Chinese Internet and now entertainment group, was investing US$250 million in the photo-messaging app… Its valuation consequently swelled to US$15 billion. Alibaba could add to this expanding US asset portfolio and be a contender for a potential acquisition of Lionsgate. Other players such as Dalian Wanda, that already owns AMC Theaters, could step in and acquire a content production/distribution company.
- Sony Corp will divest its film & TV business in 2015 as management refocuses. Potential acquirers are Rupert Murdoch, Alibaba or Vincent Bolloré
Sony is on a course to refocus its businesses and it appears that the film & TV studio is not considered a core asset. The negative publicity following the 2014 cyber-attack on Sony Pictures Entertainment could very well have accelerated divestment plans that could come into play as early as this year.
The obvious potential acquirers are Rupert Murdoch—who is looking to strengthen Fox’s international footprint— Alibaba’s Jack Ma—if he decides to make a bet on a more traditional player to balance his investment in Snapchat—and Vivendi’s Vincent Bolloré—who could solidify his group’s entertainment clout with a huge acquisition such as this one.
We’re only in the first quarter of the year. At the pace things are moving in this already disrupted media and entertainment industry, we can be assured that the rest of the year will bring its share of surprises!