The entrance of tech-first players, such as Netflix and Amazon, into the global media industry has pushed the industry to react—and M&A has become a vital to build scale in a competitive market.
Against this backdrop, the value of media M&A transactions has reached new heights. A total of US$253.2 billion changed hands in the first three quarters of the year, with seven megadeals (over US$5 billion) recorded—the highest number of megadeals in this price bracket since 2007, which also recorded seven such deals.
Chasing streamers
Competition from global tech giants in the US content market proved the catalyst for the largest media deal of the year, and one of the largest to ever take place within the media sector, Warner Media and Discovery’s US$96.2 billion deal to merge their entertainment and streaming businesses. The deal, which sees telecom firm AT&T exit Warner, is expected to create the second-largest media company by revenue after Disney.
The deal pushed Q2 value to the highest M&A value of any quarter on Mergermarket record (since 2006), US$212.8 billion.
The streaming market has seen demand soar amid the global COVID pandemic. In 2020, the number of streaming service subscriptions worldwide exceeded one billion for the first time, with online video subscriptions soaring by 26% as the pandemic took hold. The success of disruptors like Netflix and Amazon has prompted more traditional media firms to launch rival platforms, like Disney’s Disney Plus, and HBO Max, owned by Warner.
Tech firms keep their eyes on the prize
Tech players are also looking for a slice of the burgeoning M&A pie, as seen in Amazon’s US$8.5 billion acquisition of historic Hollywood studio MGM.
The deal is the second-largest transaction ever undertaken by Amazon, after its US$13.5 billion purchase of Whole Foods in 2017.
Investors buy into streaming potential
Global investors are also looking to capitalize on the high-growth potential of the US content and streaming market. In April, a consortium led by Softbank invested US$1 billion in Televisa-Univision—a newly created company formed by a merger between Mexico-based broadcast and media giant Grupo Televisa and US-based Spanish-language media company Univision Communication.
The investment will boost Televisa-Univision’s war chest as it looks to expand its streaming services in Spanish-speaking markets.
In another deal that highlights the value that global investors see in streaming content, PE giant Blackstone acquired a majority stake in US media production firm Hello Sunshine for US$900 million. Blackstone reportedly has a US$2 billion war chest it plans to use to fund further acquisitions in the global content market. Co-founded by Reese Witherspoon, the company has produced shows including Big Little Lies for HBO and The Morning Show for Apple TV+.
France media goes global
While the majority of dealmaking within the content market has focused on US firms, the trend is spreading to Europe as firms look to gain scale in an increasingly competitive industry.
In June, French media groups Groupe TF1 and Groupe M6 announced their intention to merge in a deal valued at US$2.6 billion. The creation of the new French media group aims to accelerate the development of French streaming, combining a catch-up and live streaming offer to compete with global platforms.
“The consolidation of the French television and audiovisual markets is an absolute necessity if the industry is to continue to play a predominant role in the face of exacerbated international competition, which is accelerating rapidly,” said Nicolas de Tavernost, CEO of Groupe M6, after the deal’s announcement.
Outlook
Encouraged by shifting consumer habits amid the pandemic, the global media industry is undergoing a dramatic reshaping. With broadcast firms looking to bulk up their streaming services, and tech and investment firms increasingly eyeing the market, the battle to gain market share in the sector looks set to heat up even further.
While societies are gradually opening up around the globe, the behavioral consumer shifts adopted during the pandemic will arguably take longer to change. Demand for online streaming remains at an all-time high, with the global video streaming market climbing from US$50 billion in 2020 to an impressive US$59 billion in 2021.
It is no surprise that investment firms are building up significant war chests in order to invest in the high-growth industry, while tech-first players are also looking to gain dominance. With these powerful drivers in the market, dealmakers should be on the lookout for further big-ticket deals on the horizon.