“Nobody knows anything”: possibly the most famous, and apt, description of the entertainment industry. The screenwriter William Goldman used it to highlight the uncertainty inherent in every movie project: “Every time out it’s a guess — and, if you are lucky, an educated one.”
The business is chancier now than ever. People still love to watch movies and television but the internet has transformed how this beloved product is distributed and paid for. A straightforward system of broadcast channels, pay-TV and DVD sales is giving way to video streaming companies such as Netflix and video distribution platforms owned by the digital sultanates Google, Amazon, Apple and Facebook. New options continue to proliferate.
Rupert Murdoch may then have chosen a good moment to sell the core entertainment assets of 21st Century Fox, the company he built over a lifetime. Its film and TV studios, cable networks and pay-TV businesses attracted a huge bid from Disney— $66bn in stock and debt. This is because the industry still knows one thing: that it pays to have the best shows and films, and a lot of them.
That “content is king” is, after Goldman’s quote, the most familiar piece of received wisdom in the industry. There is a lot of truth in it. The most royal content is sports content, which loyal fans watch in real time, advertising and all. Distributors pay up for it, and Disney gets a great deal of it with Fox, most importantly through a controlling stake in the Sky European TV networks. The stake will turn into full ownership pending regulatory approval of a deal previously initiated by Fox.
On top of this come the X-Men and Avatar film franchises, various TV shows and a considerable back library. Fox’s non-sports content is solid but, it must be said, of lesser quality than what Disney owns already in Pixar, Lucasfilm, Marvel and the rest. That Disney was willing to pay up for Fox’s portfolio demonstrates just how strong the scale imperative has become.
The drive for size is visible elsewhere, most recently in AT&T’s bid for Time Warner. That deal unites content and distribution, as did its predecessor, the Comcast-NBCUniversal tie-up. Sky brings pay-TV distribution to Disney, too. What Disney does with it will be a key indicator of its future strategy.
Megadeals provide scale and merge distribution and content. They will not make big media companies invulnerable to change. The big tech companies, which now produce their own content, have unique strengths in distribution and direct relationships with customers. Hundreds of millions of people shop with Amazon, connect on Facebook, or own Apple devices. Furthermore, these companies can afford to use video as a loss-leader supporting other profitable products.
Disney-Fox, AT&T-Time Warner and their peers will try to build direct customer relationships too. Disney bought BAMTech, a video technology company, last year so it could build a premier video service of its own. Buying Fox will also give it majority control of the streaming service Hulu.
The risk, however, is that Netflix, Amazon, Hulu, YouTube and the rest have taught young cord-cutters they need not pay very much for good TV. There may never be another video technology nearly as profitable as the $100-a month pay-TV package. More content and smarter distribution will help. But technology makes some industries permanently less profitable, and video entertainment could be one of them. This may be Mr Murdoch’s final, pessimistic insight into an industry he has done so much to shape.
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