Consolidation is essentially achieved across the industry. Now the mergers have to work
The long-expected ViacomCBS merger on Tuesday caps a wave of mergers in the entertainment industry that begs the question: Are we done yet?
In the last two years alone, Disney swallowed Fox. AT&T ingested Time Warner. Discovery ate Scripps Network. Comcast, which already owns NBCUniversal, inhaled Sky. And now Viacom has melded with CBS.
The result is a vastly reduced entertainment landscape, even as the technology giants — principally Netflix and Amazon — have entered the arena. Entertainment brands that were dominant for half a century or more are being reduced to divisions of larger consumer brands.
The landscape has shrunk even as the competition for content ramps up with the advent of new streaming services and the bottomless maw that is the Netflix homepage.
In the age of technology, this wave of consolidation felt necessary. In some ways, it has been inevitable. The theatrical business is fully mature and so is traditional advertising. But several people I talked to today said that we may have hit a resting point in what has been constant disruption in the past couple of years.
“I think the large-scale transactions have happened and now it’s about rounding things out with smaller acquisitions,” said analyst Rich Greenfield. “You’ve got companies like Discovery, Lionsgate, MGM — you’ve got AMC (Networks) — there is still an array of smaller companies. They don’t have obvious acquirers.” (He might have added Sony Pictures Entertainment, which is another content creator and distributor that seems ripe for acquisition.)
A veteran industry executive described this latest merger this way: “I think this slows consolidation down. Integration is hard, and this one is particularly hard — you have an ad-supported businesses, non-ad-supported businesses, you have a diverse set of assets. How you get synergy from them is a challenge.”
But Viacom is not the only company that needs to figure out how to integrate a large partner with its own established culture and business patterns. All of the companies that have made large-scale acquisitions now have to focus on making those acquisitions a success. “Disney is trying to figure it out, Comcast is trying to figure out Sky. There’s been a merger wave, now there will be an integration wave. And then we’ll see what happens,” this executive said.
The recent poor performance of Fox films released by new parent Disney is one example of how switching business cultures can create challenges for the acquiring company. The pricey X-Men movie “Dark Phoenix” — part of Fox’s most successful superhero franchises — cost $200 million and brought in just $252 million worldwide. Releasing a movie should be straightforward, but often it is not.
Disney CEO Bob Iger said as much on last week’s earnings call. “One of the biggest issues we faced in the quarter was the performance of the Fox film business,” he told investors. “It was well below what it had been and well below what we thought it would be when we did the acquisition.
“I know what happens when a company gets bought,” Iger continued, “typically operations and decision making comes to a halt.” He predicted it would take a year or two to get Fox development back on track.
For that reason, many observers said that we may see a pause in the headlong rush to acquisition. And if you’re asking whether the tech giants intend to take over what hasn’t already been swept up, the answer seems to be: not so likely. Netflix and Amazon have both had many opportunities to make big acquisitions and have passed.
The new entertainment and media landscape will take another period of time to emerge.
As Greenfield said: “As the industry matures, as advertising is declining, as consumers are leaving the bundle — you either eat or get eaten.”