A week on from AT&T’s seismic decision to spin off WarnerMedia with Discovery, TBI explores the ramifications of the deal on other major industry players.
Combining WarnerMedia with Discovery will create a content behemoth designed to rival the biggest streaming companies out there – namely Netflix and Disney.
The roots of the deal lie in a bid for global scale, with the new company aiming to offer myriad branches of content, which will all be accessible to viewers everywhere in one place. The worry for those below this canopy is that there will be little light left.
There are numerous gaps to be filled in following this proposed mega-deal – not least whether it gets through numerous regulatory hurdles – but there’s little doubting that if it does, it will become a major competitor to incumbents.
“Combining the wealth of scripted and largely US programming under the WarnerMedia umbrella, notably HBO series and Warner Bros. movies, with Discovery’s unscripted programming business and sports (Discovery owns Eurosport) will make a very confident next-generation streaming service,” says Tony Gunnarsson, principal analyst for TV, video & advertising at TBI sibling Omdia.
The most important element, however, is that it will create a giant company that “has in-house know-how on both content and technology,” Gunnarsson adds. “It will also have the central financial power to compete on the scale of Netflix, Amazon and Disney.”
The deal certainly came as a surprise to the industry, but there had been warning signs. Rumours had been doing the rounds for some time and earlier this year there were reports that WarnerMedia was looking to combine its firepower with a partner – though not with Discovery, but NBCUniversal (NBCU).
Consolidation & scale
Such a move was being warmly entertained and assessed by analysts, who have watched as streaming services have proliferated over the past 18 months. The next step will be a thinning out of the herd, says Gunnarsson.
“Consolidations between operators will be increasingly necessary to match the scale of the larger dominant players,” he says, adding that it’s “likely that some smaller players won’t survive unless they partner up.”
So could we see NBCU’s Peacock add considerably more feathers to its cap by enticing a new partner?
“Well, there are obviously huge questions about commercial strategy, but just thinking about how this would play out in terms of consumer-facing brands – i.e. combining Paramount+ with Peacock, for example – then yes, that would make a lot of sense,” says Gunnarsson.
“Together, the new combined service would have a greater chance of success internationally, by bringing together more content. And particularly if it meant refining strategy for streaming – because at present both services are quasi-AVOD hybrid services that lean heavily on operator partnerships and being bundled with other streaming aggregators, as opposed to the classic standalone SVOD strategy of Netflix et al.”
But the real gamechanger, says Gunnarsson, would be for Comcast-backed NBCU to look for a similar scale as AT&T has with WarnerMedia. A match-up with ViacomCBS could potentially make sense, bringing together the latter’s Paramount+ with Peacock and Comcast stablemate Sky, which operates the NOW on demand service. There could also be the potential to roll in AVOD trailblazer Pluto.TV.
“Something like that would surely propel the venture towards the type of scale required to compete internationally and globally with Netflix, Amazon, Disney and the new super-merger in WarnerMedia/Discovery,” Gunnarsson says. And it’s not just about IP.
“Something like this would bring together not just content but the expertise in streaming technology, understanding of international markets and the local knowledge, as well as consumer care and all of the many different things that are super-important to succeed online.”
All this is conjecture, of course, as was the mooted tie-up between WarnerMedia and NBCU at the start of the year. But the fact that one of those partners has now made the jump means the likelihood of others having to join is increased.
Gunnarsson says he believes both ViacomCBS and NBCU can survive as they are, but adds that “without consolidation it means their potential is limited to just one market” – namely the US.
And as M&A continues to dominate the business, there remains a considerable chance that those who continue to try to strike out on their own find themselves dwarfed by the global giants. “They might end up only playing a supportive role to key major streaming services, which in the long-run could make them targets for acquisition anyway,” Gunnarsson adds.