(Bloomberg Opinion) -- Big tech’s global reach is forcing European broadcasters to ask some hard questions. Consolidation isn’t necessarily the answer.
On Tuesday it was Vivendi SA’s acquisition of pay-TV operator M7. On Wednesday, Italy’s Mediaset SpA said it had acquired almost 10 percent of German commercial broadcaster ProSiebenSat.1 Media SE.
As I argued with the M7 deal, for Mediaset and ProSieben, there’s absolutely a logic to teaming up. But it’s unclear whether an investment is necessary for the Italian firm to achieve its goals. The region’s broadcasters will watch the deal closely to see if a tie-up resolves any of their seemingly intractable problems.
The digital onslaught means that broadcasters are losing viewers to Netflix Inc. and Amazon.com Inc.’s Prime, and hemorrhaging advertisers to Alphabet Inc.’s Google and Facebook Inc. In response, they’re scrambling to build video-on-demand platforms that appeal to their local audiences, and advertising technology offerings to stanch the loss of brands.
They’re in a difficult situation. Though they purport to know what their domestic viewers want to watch, they lack the international audience that allows Netflix to invest hundreds of millions of dollars in a given television series. Only a handful of shows will have global appeal. In other words, cost-savings from scale, particularly in free-to-air television, are limited when it comes to foreign—language content.
But there absolutely are significant savings that can be achieved by teaming up on the technology powering these platforms. That’s where an alliance between Mediaset and ProSieben makes sense. Even conservative investment in adtech and on-demand platforms quickly adds up.
France’s video-on-demand joint venture between France Televisions, M6 and TF1 will cost 50 million euros ($56 million) through 2020, according to Bank of America Merrill Lynch estimates. The U.K.’s ITV Plc is meanwhile investing 40 million pounds ($51 million) in adtech over three years. So even before content costs, broadcasters can very quickly reach an outlay exceeding $100 million. Splitting those expenses is therefore wise.
Given that Mediaset has probably spent a little over 300 million euros on its ProSieben stake, the promise of future cost-sharing reduces some of its downside risk. Were its costs to approximate those of its French and British peers, it could, for argument’s sake, save 50 million euros by sharing necessary tech investments.
But it’s unclear why the Italian firm, which is controlled by former Prime Minister Silvio Berlusconi, would need to invest in Munich-based ProSieben to realize such an alliance. Especially since Mediaset had cash of just 411 million euros at the end of 2018.
A suitable comparison might be the investment that Geely Automobile Holdings Ltd. made last year in German carmaker Daimler AG. Since then, the two firms have started talks about various electric car and car-sharing joint ventures in China. Was Geely’s investment necessary to make those talks happen? Probably not. But it seems to have accelerated them.
In that context, Mediaset’s investment has a logic. But only just.
To contact the editor responsible for this story: Jennifer Ryan at jryan13@bloomberg.net
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Alex Webb is a Bloomberg Opinion columnist covering Europe's technology, media and communications industries. He previously covered Apple and other technology companies for Bloomberg News in San Francisco.
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