Media and Entertainment in an Era of Upheaval
When the merger of Time Warner and AT&T was approved in June, it rekindled a firestorm of merger discussions aimed at creating vertically integrated media behemoths. While the Justice Department is appealing that ruling, most pundits think the approval is likely to stand. A change like this, coupled with technological advancements like 5G, will upend the existing market. To get a better sense of what might be coming, I sat down with Bruce Friend, President Global Media and Entertainment at Maru/Matchbox and Andrew Hawn, Senior Vice President.
What do you think the media landscape will look like in five years? In ten years?
Bruce Friend: The market will look radically different. We’ll obviously see a move to more consolidation and vertical integration, and that will happen fairly quickly. I see the bulk of the consolidation happening within the next five years — especially if companies want to get some of these acquisitions at reasonable prices. I have to say, Facebook was brilliant in buying Instagram when they did, but conversely, they are way behind in terms of their premium video content strategy. If a company like Spectrum wants to stay in the game, they will have to buy a content company. Still, that doesn’t guarantee that someone won’t ultimately buy them.
Andrew Hawn: Things are already happening very quickly. AT&T launched WatchTV, a week after that deal closed. That took a lot of people in the cable industry by surprise. People knew they were building something, but it happened so quickly. I think we’ll continue to be shocked by the speed of change.
Right now, cable companies bundle channels, but many people are dropping their cable in favor of Over the Top (OTT) delivery. Will Netflix or AT&T or Disney become so big that people subscribe just to them?
Andrew Hawn: I don’t see fragmentation going away any time soon. I don’t think there’s going to be a knight on a white horse riding in saying: “AT&T is here to solve all your issues!”
Bruce Friend: With the emergence of the “digital direct-to-consumer” or “OTT” distrubution model, there are now going to be different services that viewers are still going to want to bundle together, to get the shows, news and sports you currently watch and want. It’s a question of who’s going to build an interface that allows you to subscribe to 10 different OTT services with a single sign-on scenario, where you have one bill. The irony here is that most consumers to get all the content they want, they’re inevitably going to end up paying the same amount of money that they are paying their MVPD now.
Andrew Hawn: There is an interesting thing that’s happening at the same time as consolidation. There’s an unbundling of traditional services — 800 channels you don’t need. It’s unbundling a business model more than anything. It will become a re-bundling of other services that have more upside and longer-term equity.
The companies that are going to win are going to have not just brand equity with people, but also personal information equity that fuels discoverability. Consumers that have huge expectations for media companies to serve up what each person wants because there’s so much on offer.
Bruce Friend: Whoever figures out curated discovery is going to be in a really great position.
What will people’s expectations be?
Andrew Hawn: Consumer expectation is high. There is a whole mass of young people who have never known a world without OTT. They aren’t negotiating this change, and they don’t consider it a change. It’s their normal.
If you were under 20 in 2010, you don’t know a world other than streaming, search and discovery that is 100% mobile and online based. Ten years from now, in 2030, that will include everyone under 40. They expect a brand will take care of you, your personal information, your pre-emptive needs, and your requirement for zero friction, and I mean zero.
One other significant development is 5G. What impact might that have?
Andrew Hawn: 5G is really going to change a lot of things because you can take an inexpensive chip and a service and put it into anything. It’s not just about improving connectivity or the speed of connectivity. It’s about the new categories you can open up. It has huge implications for the internet of things in the home, home automation, connectivity, multiple streams of data and information, including content. 5G has massive implications for a lot of these business models, as it gets rolled out in the next year and a half in the U.S. You will have more contextual access to things on more platforms than in the past.
For example, I think 5G will eliminate the need for console wars in the gaming space. You will just screen shift to your TV. You’ll just log into X service, and their server farm in Antarctica will be upgraded every two weeks to the fastest video cards, and that screen will just be sent to you over 5G. And it will be very competitive on any screen anywhere in the world. That’s a total disruptor because the promise of distributed computing will become a reality.
In September 2017, Netflix streams were taking up 20% of the world’s downstream bandwidth. That will change with 5G. How might 5G effect the content game?
Bruce Friend: It’s hard to imagine what sort of implications and impact 5G is going to have on the industry globally. It opens up the emerging markets in a way that’s never been realized before. The promise of international content value is only going to accelerate with that. I think we tend to look at the industry myopically right now because we are the center of the universe for media and entertainment. After 5G, I think business is going to be much more global.
Andrew Hawn: It impacts that Long Tail conversation that started with Chris Anderson (at Wired) in the 2000s, especially in emerging markets where you suddenly have mass hysteria for the old TV show Happy Days or something like that [laughs]. That vision of content, hyperglobal and hyperlocal at the same time, is something that’s going to happen with 5G. It isn’t just tapping into the one billion-plus market in India because they can download music or something. It’s literally, I can connect to anything any time in HD and have thousands of options anywhere. It’s definitely a game changer in emerging markets.
It’s also a big shift in terms of culture globally because, the people who have grown up with streaming content tend to have a polycultural mindset. They are a global-minded group. They are more socially relevant and in the moment. They are more mindful of all those things, and they have lived in a curated world from day one. While this younger generation might not notice it so much, the reality is that huge change is underway in the world of media and entertainment.