Convergencia Research, Consultoría especializada en Latinoamérica y Caribe
Wednesday, January 12, 2022

Merger and acquisition fever in the entertainment content ecosystem

As of November last year, they were 27% more transactions than in 2020 and accumulated operations for US$ 233 billion, according to PricewaterhouseCoopers. The main trend is given by content providers investing in streaming platforms. The counterpart is the churn: Deloittte predicts that 150 million people will cancel their pay TV subscriptions in 2022.

Between January and mid-November 2021, 804 M&A deals were announced in the media and telecommunications area, 27% more than in the previous year, according to PricewaterhouseCoopers. The value of these operations reached a record US$ 233 billion, boosted by high-level integrations such as the Discovery-WarnerMedia merger and Amazon's purchase of MGM.

The unprecedented amount of transactions is framed within a context that is unusual for the industry: it is going through a fundamental transition towards on-demand digital distribution platforms. In this context, large content providers are investing heavily in streaming platforms, with latent concerns about how to package services and how the audience will behave in the face of such a diversity of direct-to-consumer options. The growth of third parties outside the sector - such as Apple TV, Google or Roku - and the first signs of churn in the United States are signs of concern, and thus in this transition path, several of actors are experiencing real "twists and turns" in their strategy.

The highest volume M&A announcement of 2021 was the US$ 43 billion integration of AT&T's WarnerMedia with Discovery. The new merged unit will be called Warner Bros. Discovery and AT&T will have 71% and Discovery 29%. The operation still needs the regulatory approval of US authorities, which is expected to be obtained during 2022, and definitions of what the spin-off of WarnerMedia by AT&T will be like.

The North American operator took certain steps during 2021 to get rid of its leg in entertainment, not only with this announcement but with the sale of Vrio to Grupo Werthein. With the creation of Warner Bros. Discovery - which is still unknown if it will take the form of a "spin-off" or a "split-off" -, AT&T ends the tortuous path of closing the purchase of Time Warner (it took two years to obtain a green light from US authorities). In addition, it aligns itself with the trend of separation by services prevailing in the industry: its counterpart Verizon in the United States also “threw in the towel” in terms of efforts in the entertainment sector and agreed to sell Yahoo and AOL for US$ 5 billion in May. of 2021.

The merged will compete fully with Netflix and Disney +, by bringing together brands such as HBO, HBO Max, TNT, CNN, Animal Planet, Discovery, TLC, among others, under the same umbrella. The combined businesses will generate an estimated profit of US$ 52 billion by 2023 and an EBITDA of US$ 14 billion.

Another milestone in 2021 was the purchase of MGM (Metro Goldwyn Mayer) by Amazon, for US$ 8.4 billion. The Amazon Prime Video platform will thus add 4,000 films and 17,000 series to its library and historical franchises such as “James Bond”, “Rocky” and “The Pink Panther.” If the operation is approved, it would be Amazon's second largest purchase after acquiring Whole Foods in 2017, for US$ 13.7 billion.

Regulatory approval is one of the great obstacles that Amazon will have to overcome in 2022, to advance with this operation. Unions of the television industry oppose to the purchase and continuously warn before the US Federal Trade Commission that Amazon would have 55,000 titles under its wing: this would severely reduce competition in the streaming platform market, considering that Netflix, for example, it has 20,000.

In the Latin American market, Televisa and Univision announced their merger in April 2021, which will create the main content producer in the Spanish-speaking world. “Televisa-Univision” will present its common catalog at the beginning of 2022. Televisa will contribute 86,000 hours of content broadcast on its 31 channels (4 open TV and 27 pay TV), a film studio and its streaming platform “Blim”; Univision, on its part, will contribute material from two open TV channels, 9 cable channels, 61 television stations and 58 radio stations, and the on-demand platform “Prende TV”.

Televisa will be the majority shareholder after the operation - valued at US$ 4.8 billion -, with a 45% stake. And it will retain ownership of Sky and Izzi. In the announcement of the operation, it was noted that the Spanish-speaking market is "significantly neglected": only 10% of that population is subscribed to an on-demand content platform, while in the Anglo-Saxon market the percentage rises to 70%.

Faced with this fever of mergers and acquisitions, Netflix does not rule out acquiring other companies. The streaming platform had so far remained on the sidelines of these M&As, with the exception of purchasing the comic book firm Millarworld. Ted Sarandos, Co-CEO of Netflix, revealed during a recent event: “Historically we have been more builders than buyers. We have built an impressive library of content from scratch in recent years. But we are certainly open to acquisitions."

Churn. The streaming competition that led to an intensification of M&A processes also creates an abundance of choice for consumers, and signs of churn are already being seen, especially in the United States. According to Deloitte, in 2022 more than 150 million people will cancel any of the subscriptions they have contracted and a high turnover will be noticed between the different services. In the United States, the number of households that will cancel a service will touch 35% and in Europe, 25%. Migrations to free on-demand entertainment offers supported by ads (such as Pluto TV, for example) will also be highlighted, in the consultancy's views.

 

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