FXEmpire
Predators prepare to pounce Leo Barraclough explains how the pandemic is an opportunity for certain media companies and other investors
‘N
ever waste a crisis,” is the oft-quoted cry in the business press of late, and those with financial muscle are getting ready to pounce on distressed stock. The pandemic has seen the price of many media shares plummet, while borrowing remains cheap, setting the scene for a demonstration of Darwinian economics. Guy Bisson, research director at Ampere Analysis, says two factors will drive mergers and acquisition activity: “One is the impending economic collapse globally, and the other is simple disruption that was going on anyway around streaming migration.” This will drive companies to “seek scale in a storm and look for bargains” over the next year or two. In May, the merger between Virgin
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Media and O2 was announced, a deal that will create a business with revenues of £11bn and 46 million customer accounts. Underlying it are two forces that have been sh aping the media landscape for some time: the drive for scale, resulting in consolidation, and convergence between the telecommunications and media sectors. Such combinations are now commonplace, with AT&T’s support for HBO Max illustrating the benefits of such a marriage. But Sebastien Raybaud, founder of production and finance firm Anton, which has co-financed many bigger-budget TV series, such as His Dark Materials and McMafia, says “the convergence of the pipe and the content is less relevant now… and less of a necessity”. This is because media companies have started to open up direct routes to the end consumer.
As fast as companies attempt to consolidate, the market further fragments. A Deloitte report, published at the start of the year, stated that “consumers can now choose from more than 300 streaming options”. Since then, even more services have been added, with more to come. “The [coronavirus] shutdowns have accelerated the move to direct-to-consumer digital entertainment,” says Tim Westcott, research director, channels and programming, at Omdia. In a hyper-competitive market in which “quality is the differentiating aspect”, Raybaud says, producers of premium content hold all the cards. “The power is shifting to the producer because there are a lot of pipes now and, therefore, there is crazy competition between them to capture eyeballs,” he says.
