Consolidation around global D2C platforms and premium niches
Demand and supply side factors point to a consolidation of the media landscape. On the demand side, the economic downturn is expected to reduce global monthly household spending and lead consumers to evaluate whether their subscriptions are still providing value. On the supply side, a growing number of direct-to-consumer (D2C) services will bid up the price of content, while corporate budgets tighten throughout the economic recovery.
These top and bottom line pressures will have the most severe impact on mid-market media and entertainment companies that need to make large investments in content without the user base with which to fund them. The likely winners will be global platforms that already have the ability to amortize large capital expenses across a broad user base and niche players that operate small but profitable subscription services offering proprietary content.
There's a growing subscription fatigue among consumers, who are spending too much money each month, for too many services. In this environment, streaming services will have to distinguish themselves by putting their consumers first. Audiences want great content and the best viewing experience at a price everyone can afford – free.—Linda Yaccarino, Chairman, Advertising and Partnerships, NBCUniversal, USA
Key trends and proof points
Content splinters across growing set of offerings battling to own customer relationship
- Major media companies revamping digital offerings: To establish a more direct relationship with the user, traditional players have announced revamped D2C offerings, such as NBCU’s Peacock, WarnerMedia’s HBOMax and ViacomCBS’s expected relaunch of CBS All Access.
- Sports leagues going straight to the consumer: Sports has been upended during COVID-19. The NBA and MMA-league One Championship announced partnerships with Microsoft to redefine personalized fan experiences for future D2C offerings, including next-generation, personalized game broadcasts and other content offerings.
- Content providers cut out intermediaries: The New York Times announced it will no longer provide articles alongside other publications on the curated Apple News feed, as it looks to build direct relationships with paying readers on its own digital platform.
Digital natives spend heavily as demand outstrips supply
- Streaming services increasingly bid for premium content: As cinemas struggle to maintain a theatrical window that has, in some cases, been shortened from 90 days to 17 days, digital players have increased efforts to acquire premium content, such as Apple (Greyhound, Boys State) and Hulu (Palm Springs, Bad Hair).
- Growing interest in sports content: After the NFL’s digital streaming audience for Thursday Night Football increased 43% YoY during the 2019-2020 season, Amazon Prime extended its 2017-2020 deal to stream Thursday night NFL games to 2023 and acquired the additional right to stream one Saturday game per year.
M&A accelerates around key growth areas
- Uptick in podcasting deals: In Q2’FY20, SiriusXM purchased podcast platform Stitcher for $325 million to compete with Spotify, as the latter grew its podcast catalogue to more than 1 million shows in Q1’FY20.
- Large gaming companies on a buying spree: Acquisitions in the gaming market have accelerated in H1’2020, with Zynga’s $1.8 billion acquisition of mobile gaming company Peak, Embracer Group’s $525 million acquisition of PC and Console gaming company Saber Interactive and Scopely’s acquisition of mobile gaming company FoxNext Games from Disney.
- Traditional players acquiring VOD capabilities: Since early FY19, Comcast-owned Fandango purchased Vudu to bolster its own digital marketplace, while Fox purchased Tubi and ViacomCBS purchased Pluto to enter the AVOD and free virtual Multi-Video Programming Distributor (vMVPD) markets.
- Consolidation in growing edtech market: From 2012 to 2018, edtech acquisitions saw a 32% CAGR. In H1’2020, online education company K12 Inc. acquired coding school Galvanize, education publisher Wiley acquired IT training platform mthree and Indian online learning platform Unacademy acquired medical education company PrepLadder.
- Byju Raveendran, CEO of BYJU’S, has described the current state of the industry as “an inflection point in the education space that will democratize learning for all.” He further highlights that services that empower learners, remove the geographical barriers and provide value instantly and effortlessly in an engaging and customizable format will find favour in the long run.