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Straight Talk Consumer and Entertainment Services

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Visual entertainment content and its distribution are being completely reshaped: the huge transactions between AT&T and Time Warner, Disney and Fox, Sky Europe and Comcast, and Vodafone and Liberty Global bring together multiple disparate businesses across content production, ownership, and distribution. The rationale is straightforward and will be taught in business schools for decades as either a case study in disruption countermeasures or a salutary example of how tying two rocks together just makes them sink faster together.

The impetus for these partnerships has been apparent for some time: entertainment players want to compete effectively for market share in OTT subscriptions and AVOD while managing declines in pay-TV subscriptions and low-to-no-growth commercial broadcast. They are no longer facing competition from organizations that resemble themselves but from technology-focused organizations that are sometimes prepared to operate video businesses at zero-to-negative margins in the service of adjacent businesses or to simply grow market share.

Figure 1: US, AVOD revenue and market share, YouTube and Facebook vs. the rest, 2015–22

US, AVOD revenue and market share, YouTube and Facebook vs. the rest, 2015–22

Source: Ovum


Nothing has worked thus far to slow the domination in entertainment distribution of Facebook, Apple, Amazon, Netflix, and Google ("FAANG") across the world. Even in evolving markets for online video, FAANG's market share is routinely more than 50%. Without a meaningful stake in the growth segments, even the biggest names in entertainment are looking at a future of managing long-term declines in significant but ex-growth businesses.

The M&A deals currently underway follow years of failed initiatives and countermeasures, and they are based on unproven hypotheses. The drivers are outwardly convincing: scale up and reduce content acquisition costs on a per-subscriber or viewer basis; bring content and distribution under the same roof to configure and launch direct-to-consumer (D2C) video platforms rapidly; aggregate audiences to enable larger-scale data capture, finer audience segmentation, and better ad targeting; build audiences across TV, OTT, and mobile to offer cross-platform campaign buys; focus on owned-and-operated D2C video platforms to reduce the reliance on distributors; and invest more in exclusive and original content to populate the catalogs of owned-and-operated D2C video platforms. The questions now focus on which of the supersized entities can execute its strategy most effectively, and whether supersized entities have enough time remaining to make meaningful inroads into FAANG's market share or whether they should settle back with a long slow drink in the last-chance saloon.

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