Spin-offs and M&As: the fight to the top of the most lucrative streaming platforms

In 2018 US phone company AT&T spent $85bn (now about R1,2-trillion) and fought off a government antitrust challenge to buy Time Warner, the owners of Warner Bros, CNN and HBO.

Since then WarnerMedia has grown to include HBO’s streaming service HBO Max and the sports-heavy cable services TBS and TNT, but in the popular and lucrative world of streaming, and in spite of spending billions on HBO Max, which has about 20 million subscribers, the company has been struggling to compete against streaming giants such as Netflix and Disney+.

On Monday, in a move that many see as an attempt by AT&T to cut its losses from the 2018 deal, WarnerMedia announced it will form a separate spin-off business by merging with the Discovery channel in a deal that will see AT&T make $43bn (about R600bn) and take a 71% stake in the new business, which it is hoped will enable the two companies to compete against Netflix, Disney+ and Amazon Prime Video for a bigger slice of the streaming pie.

In the past year and a half Disney+ has raced to 100 million subscribers, putting it in line to become the biggest streaming service in the world within the next five years, while Netflix and Amazon Prime have grown their subscriber bases to more than 200 million and 175 million respectively.

The new deal will merge Discovery’s predominantly reality TV-based 15 million subscribers and its channels, which include Oprah Winfrey’s OWN, HGTV, Food Network and Animal Planet, with WarnerMedia’s HBO content, such as Succession, Game of Thrones and its blockbuster franchises that include the Harry Potter films and the Batman franchise. This will provide a base of content that it is hoped will attract millions of subscribers to its established content, as well as provide a means of creating new content for its streaming services rather than licensing that content to streaming services owned by competitors.

The AT&T Discovery merger was the biggest news in the entertainment world until Tuesday, when it was revealed that Amazon CEO Jeff Bezos was in talks to buy the last big studio not to be part of recent big media industry M&As — MGM. The studio has been the subject of sale rumours for the past few years, but its $9bn (about R123bn) price tag was deemed too high by streaming giants Netflix and Apple, which were both apparently sniffing around its doors in the past year before deciding not to purchase.

MGM owns a library of more than 4,000 film titles, including everything from 'Gone with the Wind' to 'The Hobbit' and the 'Rocky' franchises, and 17,000 hours of TV, including the award-winning drama 'The Handmaid’s Tale', which are attractive to any company looking to deepen its streaming offerings.

MGM owns a library of more than 4,000 film titles, including everything from Gone with the Wind to The Hobbit and the Rocky franchises, and 17,000 hours of TV, including the award-winning drama The Handmaid’s Tale, which are attractive to any company looking to deepen its streaming offerings.

The jewel in the crown though is the company’s 50% stake in the fifth most profitable franchise of all time — James Bond. The 24 films in the Bond series have to date grossed more than $7bn (about R96bn) and have a huge, intergenerational and loyal fan base that will see the long-awaited and postponed due to Covid-19 release of the next film in the franchise, No Time to Die, bring in at least $1bn (about R14bn) at the global box office when it finally appears later this year.

Amazon’s acquisition of the legendary studio and its profitable 007 franchise would go some way to reducing the amount of money it has been spending on creating, acquiring or licensing TV and film content — $11bn (about R151bn) in the past year — while also providing it with an in-house means of making new content to satisfy the demands of its hungry 175 million Prime Video subscribers.

With Disney+ snapping at its heels and Netflix within its sights, Bezos is happy to pay the high price tag for MGM to ensure his streaming service remains in the top tier, while also having the resources to attract new subscribers and create new content.

With these two salvos and the move from streaming wars to takeover wars now fired, it remains to be seen what other streaming subscription services which lie outside the assets of media conglomerates will do. Will they fight to provide content that makes them viable choices for consumers on their own or will they be forced to recognise that they will never have the resources to play in the big leagues and must throw themselves at the mercy of giant companies to survive?

There is also the question of what happens when consumers, unable to find a one-stop shop for all their entertainment needs at an agreeable subscription rate, must now spend more money on multiple streaming subscriptions to ensure they have access to Star Wars, Game of Thrones, The Handmaid’s Tale, Harry Potter, the Marvel Comics Universe and James Bond.

The determination of media empires to maximise their profits through old-school vertical integration of their businesses to make sure they are getting something out of every part of the chain, from production to distribution, may on the surface create a streaming world with more choice, but may also cause more irritation for consumers who may prefer to get everything they need in one convenient place at one convenient price.