Are we at the start of Streaming 2.0?

Posted 25.05.21

AT&T announced last week that they have struck a deal with Discovery to spin off and merge Warner Media with Discovery Network to form a new streaming giant. 

The deal, which had only been mentioned some 24 hours earlier, seems to have been agreed on Monday and plans to merge Warner Media and Discovery to form a new media company.

According to reports AT&T shareholders will own 71% of the new company, whilst Discovery shareholders would own the remaining 29%.

However, this looks like a masterstroke deal from David Zaslav, President and CEO of Discovery. 

Why is this a win for Discovery
Discovery’s President and CEO David Zaslav is set to lead the new media business that will contain HBO, Warner Bros, and CNN alongside Discovery-owned channels such as Animal Planet, TLC and the Discovery Channel.

Despite only owning 30% of the future business, the chance for Discovery to make the most of three of the entertainment world’s most powerful brands is a huge opportunity and could help them reach scale never before achievable. Warner Bros, has one of the largest and most award-winning movie and TV catalogues, whilst HBO, despite the issues of HBO MAX is still seen as the home of prestige television and creators of some of the world’s most iconic shows and characters.

Lastly, and most interestingly perhaps Discovery gets a piece of CNN, one of the most respected brands in news, giving them a unique foothold in the streaming market across sports, news, TV and film (given they already own sports broadcast network Eurosport). If Zaslav and his team can maximise these new brands they could deliver on the promise of what AT&T splashed out $85 billion for just 3 years ago. 

The biggest plus for Discovery and Warner Media is that combined they now have the scale to compete with the two biggest players in the market, Netflix and Disney, with Zaslav and AT&T CEO John Stankey already suggesting that combined Discovery and Warner Media spend close to $20 billion per year on content, more than the $17 billion a year Netflix is reported to spend.

More to come…
This is the first mega-merger since a slew of new streaming platforms went to the market and I would bet will not be the last, in fact, I’d bet there’s another major media acquisition or merger before the year is out.

But what does this tell us about the state of streaming in 2021? 

Well, firstly that this is not likely to be a zero-sum game. A combined Warner Media and Discovery entity makes perfect sense when they look at how far Netflix and even Disney have moved away from the competition in terms of subscriber numbers and the annual budget they are now throwing into original content. Not only that but Disney, in particular, has played strongly on the power of its franchises and those globally recognised brand names (Pixar, Star Wars, Marvel etc) have catapulted them into a position it has taken Netflix years to build towards. 

David Zaslav and his team at Discovery have seen some relative success with the roll-out of Discovery+ but are aware that it can be a perilous position to be the smallest fish in a big pond. However, data suggests that consumers are willing to take on more than one or two streaming services as they move away from traditional cable and linear bundles. As I mentioned in my State of Streaming post from earlier in the year, Neilsen data suggests that up to 93% of people will either increase or keep their existing streaming subscriptions. Going somewhat against expectation more people said they would add a new service at an additional cost (38%) rather than swap out one they already had (27%). 

Secondly, this move tells us that we are potentially at the start of streaming 2.0, where online platforms and digital-first businesses eat the traditional media and entertainment industry.  

Following the news of a Warner Media & Discovery merger, it was reported that Amazon was in talks to buy MGM in a $9Billion acquisition. The film company, which owns the James Bond franchise, had reportedly held initial talks with both Netflix and Apple but it seems Amazon has stolen a march on the competition in what would be a shrewd move to bolster the appeal of Prime Videos to a global audience. Bond is the fifth most valuable movie franchise of all time and would give Amazon a real boost globally given the broad appeal of the now 24 film series. As well as Bond, MGM has a deep catalogue that would appeal to Amazon with titles like The Hobbit, and TV hits such as The Handmaid’s Tale. 

This move could spell a shift in streamers thinking away from expensive licensing deals for key titles and franchises to a place where they outright own more of the content on their platforms. Disney has shown the power of owning your own IP and for that to be franchise driven but others have struggled to follow suit. With Bond, Amazon has that opportunity and I’d expect to see other platforms looking to do the same. This is also partly being driven by a variety of services that are now taking back control of their own content, especially hit TV properties rather than looking to cash in on lucrative licensing deals in order to support their own streaming endeavours. Gone are the days of Netflix spending $100M to license Friends as Warner Media now see that as a pivotal lever to entice and retain subscribers to its own platform.  

The challenge for everyone will now come in their ability to create their own franchise on which they can capitalise upon. Disney is obviously in the strongest position given the incredible power of its Marvel, Star Wars, Pixar IP but others are no doubt plotting ways to do the same. 

Tom Jarvis – Founder & CEO

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