The Streaming Wars Are Now the Takeover Wars

The streaming wars are about to become the takeover wars. First WarnerMedia and Discovery, now Amazon and MGM — the dominoes are in motion.

AT&T Inc.’s WarnerMedia and Discovery Inc. stunned investors Monday with the announcement that they’re linking up to build a streaming-video super-app to take on more formidable rivals such as Netflix Inc., Amazon.com Inc.’s Prime Video and Walt Disney Co.’s Disney+. The deal will stitch together WarnerMedia’s collection of iconic Hollywood assets with Discovery’s reality-TV empire, as well as their respective streaming services, HBO Max and Discovery+. While it’s structured as a complex Reverse Morris Trust transaction, it’s billed as a straightforward merger. That’s by design, because the subtext is AT&T undoing its ill-advised 2018 takeover of  Time Warner Inc. and running  away from the streaming wars as fast as it can.

Discovery and others are in it to win it, though, which means buying anything and everything that can supply material for streaming audiences. News reports have already surfaced that Amazon is in talks for a streaming-motivated acquisition of its own. It’s said to have its sights on Metro-Goldwyn-Mayer, the 97-year-old movie studio known for the roaring lion that introduces its films. MGM may fetch $9 billion, according to Variety, making it Amazon’s largest purchase since Whole Foods Market Inc. in 2017 and a sign of the tech giant’s widening ambitions. MGM’s best-known movies are the James Bond franchise, although it also produces TV series such as “The Handmaid’s Tale,” a popular show on Hulu.

As streaming apps vie to be consumers’ first choice, fewer studios will be playing the role of arms dealers. Companies are recognizing the need to own their programming outright and to conserve it for their own app libraries. For example, ViacomCBS Inc.’s Paramount studio division was behind streaming hits such as Netflix’s “13 Reasons Why” and Amazon’s “Jack Ryan,” a strategy that paid off for a time because hungry buyers were paying top dollar for content. But Paramount’s new mandate is to create programs exclusively for Paramount+, ViacomCBS’s newly minted streaming service.

The Streaming Wars Are Now the Takeover Wars

ViacomCBS could very well be one of the next dominoes to fall. Valued at $26 billion, it wouldn’t be a small bite. But compared with the likes of a $217 billion Netflix, an even bigger Disney and a $2 trillion Apple Inc., it’s certainly digestible. Paramount+ has the creative components needed to succeed in streaming, but it doesn’t have the resources or reach of its larger rivals. Consider that Amazon Prime has nearly 150 million members in the U.S. who get access to Prime Video as an added perk. And there are nearly as many iPhone users in the U.S. carrying around a billboard for Apple TV+ right in their pockets.

Amazon and Apple’s services could certainly use more programming if streaming is to be a serious venture for them. Buying movie studios is less about gaining old films than having the tools needed to create new must-see series. Lions Gate, MGM’s $3.5 billion rival, is an obvious candidate because it also owns the Starz brand. Starz also recently had the rug cut out from under it when Sony Pictures struck a $1 billion deal to send its movies to Netflix once they leave theaters, an accord the studio previously had with Starz.

AMC Networks Inc. — the cable channel, not the theater chain — will also struggle as a stand-alone entity in the streaming era given its limited number of programs. The company has a knack for picking hits — “The Walking Dead,” “Mad Men,” “Breaking Bad” — but there aren’t enough to justify a monthly subscription when other services pack in much more variety. Still, addictive franchises will drive streaming subscriptions and reduce cancellations, which is why AMC, at a mere $2 billion, should be on every buyer’s radar. 

Then there’s Comcast Corp.’s NBCUniversal. Before Monday’s Discovery deal, some analysts and investors had suspected NBCUniversal and WarnerMedia would merge, while Comcast and AT&T both revert back to focusing on their more profitable cable and wireless operations. AT&T’s exit might speed up Comcast’s search for its own solution, as the cable bundle loses value and its Peacock app fails to make waves. 

Ironically, the cable bundle may be where this industry is headed. Consolidation will lead to fewer services stacked with more content, which creates a simpler, more enjoyable experience for consumers, though not necessarily a cheaper one. The apps left standing in the streaming wars will join subscription bundles, just as cable networks did with internet and phone packages during the cable era. And commercials are making a comeback, too. “Streaming” initially signaled an ad-free app for a single company's content — e.g., Disney+ — untethered from all the other stuff on TV you ostensibly don't need. In the end, it could look like the same old TV we've always known, just over a Wi-Fi connection.

Streaming just barely became an industry this year, and already the buying spree is beginning. At some point, some companies will realize it’s not worth plowing so much money into the space. The idea is to find one that still is before the music stops.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Tara Lachapelle is a Bloomberg Opinion columnist covering the business of entertainment and telecommunications, as well as broader deals. She previously wrote an M&A column for Bloomberg News.

©2021 Bloomberg L.P.

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