The way you watch your favorite television shows and movies is likely to change, often growing more expensive, after a wave of transformative corporate deals enabled by a federal judge’s approval of the contested merger between AT&T and Time Warner.
Companies from technology giants like Amazon, Apple and YouTube to internet service and cable providers like Verizon Wireless and Comcast are expected to spend billions to consolidate ownership of distribution services and the original content offered on those platforms. Critics including the federal government say such a shift will deter competition and force consumers to pay more, a point the Department of Justice argued unsuccessfully in trying to block the AT&T deal.
[Related: AT&T’s victory in Time Warner merger clears way for deal bonanza]
“There’s a lot of market experimentation going on, a lot of disruption,” Rob McDowell, a former Federal Communications Commission member who’s now a partner at law firm Cooley, said in a recent interview. “We can’t even imagine what other mergers and acquisitions might be coming over the horizon.”
The impact of senior U.S. District Judge Richard Leon’s ruling on AT&T was immediate. Comcast cited the ruling when it submitted a $65 billion all-cash offer for 21st Century Fox, which the Walt Disney Co. had already agreed to buy. Disney then increased its offer to $71.3 billion in cash and stock.
Experts say the bidding war could stretch out for months. Fox called Disney’s increased offer “superior” to Comcast’s bid and delayed a previously scheduled July 10 investor meeting to “provide stockholders the opportunity to evaluate the terms of Disney’s revised proposal and other developments to date.”
Up for grabs are assets like film studio 20th Century Fox, a vast cable television network and a 30 percent stake in streaming service Hulu, giving both companies a reason to aggressively pursue the merger. Among other things, Disney wants to further capitalize on its popular “Avengers” movie series by acquiring Fox-owned Marvel franchises like X-Men. Comcast wants to bolster its film and TV offerings as it seeks to drive more customers to its wireless and cable services.
Industry experts say technology giants like Netflix, Amazon and Apple that are eager to widen their own programming could seek to purchase smaller movie studios like Lions Gate Entertainment Co., A24 Films or a legacy production company like MGM Studios. Service providers like Verizon Wireless, which acquired Yahoo for $4.48 billion in 2017 partially for the company’s digital content, are expected to pursue similar deals.
Such combinations could be critical to competing in the new landscape.
“It’s very clear that content on any scale can’t exist without captured distribution and a lot of information about the audience that’s being reached,” media industry strategist Peter Kreisky said in a recent interview. “It’s going to be very difficult for either a communications company like Verizon or an entertainment company like Disney to go it alone anymore.”
Spokespersons for Lion’s Gate, MGM Studios, Netflix, Amazon and Apple did not respond to requests for comment. Verizon declined to comment.
The transformation of the consumer entertainment market, already under way, is likely to accelerate in tandem with the corporate takeovers.
Individuals currently have a slew of options when determining a content provider, and while traditional services like cable are still popular, consumers are flocking toward platforms like Netflix. Along with streaming services like Amazon and Hulu, there are several smaller companies like DISH Network-owned Sling TV that allow users to customize their TV lineup.
Cable subscriptions dropped by nearly 2.9 million in the first nine months of 2017, according to media research firm Kagan. It was the fifth straight year of declines for the industry.
In the new media landscape, consumers could be left with fewer options, but those that remain will likely be robust and contain a broad swath of original programming, as well as shows from the numerous TV networks obtained through mergers and, possibly, licensed content.
Disney, for example, has already said it will pull its programming from Netflix and start its own streaming service should its deal with Fox close. In addition to Disney’s existing media empire, the company could offer Fox’s cable television programs exclusively on its platform, forcing customers to have to pay whatever price Disney wants.
Experts say companies that currently own no media assets will be forced to rely solely on their own programming, which could necessitate even more acquisitions.
“Original content will become more important to distributors like Netflix or Amazon, or even some of the legacy distributors that have infrastructure, like a Comcast or [Charter Communications],” said Andre James, head of consultant Bain & Co.’s media and entertainment practice. “The losers that haven’t been able to punch through will have to pursue a licensing strategy to pursue viability in their businesses.”
While AT&T and others argue the transition will lower costs to consumers because the companies will control more aspects of the supply chain, the Justice Department and industry experts expect the opposite.
“There is going to be an increase in prices,” said Derek Horstmeyer, a professor at George Mason University. “Every time you have these consolidation waves, nine times out of 10, it’s to the detriment of pricing and the consumers.”
Exacerbating such concerns is the decision by the Trump administration to roll back the net neutrality rules put in place under former President Barack Obama. Critics say without the framework, companies that own both the distribution channels and the programming could speed up access to their own content, while simultaneously slowing down access to competitors.
“The temptation to do something now is going to be pretty strong,” said Shane Greenstein, a professor at Harvard Business School. “There’s going to be these incentives to play these games, maybe not block someone but maybe throttle them and make it harder to get their data in.”
