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The year in review: IP, scale and skyrocketing content spends drive merger-mania

While there were elements of the past year that seemed like a reprise of the tumult of 2020 — variants of the COVID-19 virus among them — there were many ...
December 20, 2021

While there were elements of the past year that seemed like a reprise of the tumult of 2020 — variants of the COVID-19 virus among them — there were many signs of recovery and even growth for the global unscripted and non-fiction screen content industry. Here’s an overview of some of the major industry trends of the past year.

M&A: THE BIG GET EVEN BIGGER

Corporate mergers and acquisitions gained traction in 2021, with scale, IP and the evolving content distribution ecosystem as the prime motivators for the biggest deals.

In a move that seems set to significantly redraw the entertainment media landscape, Discovery Inc. and AT&T’s WarnerMedia announced plans to merge and “create a premier, standalone global entertainment company” in May.

The deal combines WarnerMedia’s premium entertainment, sports and news assets with Discovery’s non-fiction and international entertainment and sports portfolio, bringing together under one umbrella such television properties as Discovery Channel and its sister cable nets with HBO, CNN, TBS and TNT; as well as streamers including HBO Max and Discovery+, and the Warner Bros. film studio.

David Zaslav, Discovery Inc. president and CEO, is set to lead the new company, to be named Warner Bros. Discovery. The initial wordmark for the new entity is a nod to Warner Bros.’ past, specifically, the 1941 film The Maltese Falcon: “the stuff that dreams are made of.”

The merger is expected to close this year and needs to go through the usual regulatory approval process. At press time, it hasn’t been a clear road, with a number of Democrats in the U.S. Congress claiming the deal “raises significant antitrust concerns.”

In 2021, global streamers also moved more aggressively into the M&A space, with a range of targets — from traditional content giants to emerging tech companies — in their sights. A mere week after the Discovery/WarnerMedia announcement, Amazon revealed it was buying MGM Studios for a reported US$8.45 billion. Netflix, meanwhile, made several big buys, ranging from established service providers (Vancouver’s Scanline VFX) to gaming developers (Night School Studio). But the mighty streamer’s biggest acquisition was an IP play: Roald Dahl Story Co., bought for a reported $700 million.

Indeed, the battle for IP has driven up the stakes and the prices in the M&A game for both traditional content companies and the tech firms building their entertainment divisions. Amazon’s MGM buy gives it a catalog of 4,000 films and 17,000 television programs, beefing up the tech behemoth’s content portfolio along with Amazon Studios’ offerings.

Meanwhile, at the time the deal was announced, the architects of the Warner Bros. Discovery deal boasted that the combined company “will own one of the deepest libraries in the world with nearly 200,000 hours of iconic programming and will bring together more than 100 of the most cherished, popular and trusted brands in the world under one global portfolio.”

On the digital front, consolidation was also in the cards. In December, Vox Media signed an agreement to acquire Group Nine, owner of multi-platform media brands including The Dodo, NowThis, PopSugar, Thrillist and Seeker. The deal will see Group Nine join Vox Media’s editorial brands such as SB Nation, New York Magazine, The Verge, Vox, Eater, The Cut, Vulture, Polygon and The Strategist, along with its expanding podcast and studios business. Earlier in the year, BuzzFeed announced it was acquiring global youth entertainment mediaco Complex Networks.

The agency business landscape was also further redrawn in 2021, with Creative Artists Agency (CAA) announcing its acquisition of ICM Partners in September. The move came in the wake of what was a turbulent period for agencies across the board, as the entertainment industry endured several stops and starts amidst the COVID-19 pandemic. In July of last year, CAA laid off 90 executives and agents across departments and furloughed approximately 275 assistants and other staff.

STREAMING WARS AND SPENDING SPREES
In addition to bulking up catalogs of existing IP via mergers and acquisitions, major media players also racked up sizable costs in buying and producing content — a trend that is set to continue in 2022.

In November, the Walt Disney Company revealed through its annual report filed to the U.S. Securities and Exchange Commission that it’s planning to increase its annual content spend to US$33 billion in 2022, an increase of $8 billion from the 2021 fiscal year’s spend of $25 billion. According to the report, the increase “is driven by higher spend to support our DTC expansion and generally assumes no significant disruptions to production due to COVID-19.”

Elsewhere in the report, the global media giant further detailed how it expects to divvy up its content spend. Disney’s General Entertainment division is set to produce or commission 60 unscripted series and 15 docuseries or limited series in 2022 across the company’s linear and streaming distribution platforms.

The $33 billion spend serves as the most recent big chunk of change being invested in the content “arms race,” through which media companies are throwing significant resources behind acquiring and commissioning content. A report from UK-based research firm Purely issued early last year estimated the content spend for global streaming services and their parent companies would hit more than $250 billion in 2021, with Netflix having set a benchmark for a $17 billion content spend for the year, and the two companies behind the media behemoth-to-be, Warner Bros. Discovery, spending a combined $20 billion on films and programming for their linear and streaming services.

As the streaming market matures and continues to splinter off into a variety of acronyms — SVOD, AVOD, FAST — it also faces the daunting task of weathering churn. Deloitte Global predicts that in the year ahead, “at least 150 million paid subscriptions to streaming video-on-demand (SVOD) services will be cancelled worldwide, with churn rates of up to 30% per market.” How the big bankrolling of new content will counter that trend is, perhaps, the $33 billion question.

(With files from Jillian Morgan, Justin Anderson and Andrew Jeffrey)

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