Why mergers in entertainment media will mark 2024

India's entertainment companies are facing disruptions and shifts in consumer behavior, leading to an existential crisis. Traditional media firms globally are also struggling and seeking mergers to sustain their legacy businesses and stem losses in their digital ventures. The OTT segment is facing challenges as content costs escalate and audience growth slows down. Broadcasting companies in India are attempting hybrid OTT business models, but face competition for digital ad money from tech giants and e-commerce platforms. The industry is in a quandary about the way forward, whether it be mergers or changes in business models.

Will 2024 see an accelerated decline of linear television business? Will it be a year of mergers for broadcasting companies? Will over-the-top (OTT) video streaming services manage to sustain their businesses or lose eyeballs and revenue to technology giants? These are some troubling questions that India’s sizeable entertainment companies are seeking answers to as they experience disruptions caused by digitally-powered businesses, and shifts in consumer behaviour.

Why mergers in entertainment media will mark 2024

However, the entertainment media’s existential crisis is not unique to India. Globally, large traditional media firms are in a quandary looking for ways to sustain their legacy businesses and stem losses accruing in their digital ventures. One way is to join hands with longstanding rivals. In December, Bloomberg reported that Warner Bros. Discovery and Paramount Global are in talks for a merger. Both own TV channels, film production studios and streaming platforms. A handshake could help them save on marketing and production costs as their pay TV business profits shrink and streaming services Max and Paramount+ are yet to make money.

Back home, Disney Star and Reliance-backed Viacom18 are similarly in merger talks for their TV and streaming assets. Entertainment broadcasters Sony and Zee continue to be in negotiations to complete the merger announced in 2021.

“Globally, only the pure play streaming services (Netflix, Amazon) are making money. The legacy broadcasters compelled to launch streaming ventures have been struggling and therefore seeking strategic alliances,” said media industry expert Anuj Gandhi. In his report on M&E sector outlook for 2024, media analyst Karan Taurani of Elara Capital said, “We expect more consolidation to pan out in the OTT segment as unit economics of the OTT platforms remain unfavourable, with largely all of them making hefty losses due to hefty content costs and customer acquisition cost.”

Unfortunately, as OTT content costs escalate, growth in its audience base has slowed down. An Ormax Media report in November said while OTT audience base grew 20% from 2021 to 2022, it increased only 13.5% over the last one year, indicating the category was past its peak growth phase. There are 101.8 million active paid (B2C) OTT subscriptions in India, across an audience of 36.4 million indicating an average of 2.8 subscriptions per paying audience member. B2C subscriptions refer to subscribers who have taken a membership directly with the OTT platform, in contrast with B2B subscriptions, which are via telecom packs.

It’s a double whammy for broadcasters in India as their pay TV universe is declining and streaming growth rates are petering out. Interestingly, even in the US, more and more consumers are cancelling their OTT subscriptions owing to platforms increasing prices and the cost of living going up.

Broadcasting companies here have been attempting to build hybrid OTT business models that rely both on subscription revenue as well as revenue from advertising-led video-on-demand (AVoD) plans. “The big question is will SVoD (subscription-based video-on-demand) grow or has it hit the glass ceiling,” said Gandhi. An April 2023 Ficci-EY report said digital subscriptions are expected to grow at a CAGR of 11% up until 2025. The bad news is that both internet penetration and smartphone sales have tapered in India.

The advertising-based OTT plans may also feel the heat as the fight for digital ad money is fierce. Although Alphabet’s Google Search and YouTube and Meta’s Facebook and Instagram, may have seen a dip in their digital advertising market share from 90% some years ago to 70% now, they still bag the bulk of online ad budgets.

However, their duopoly is being challenged by e-commerce platforms like Amazon and Flipkart. Last year, globally, Amazon’s advertising services’ revenue grew by 22% year-on-year. In India, the total e-commerce ad share is expected to jump from ₹7,000 crore to ₹15,000 by 2025, as per the Ficci-EY report.

Elara’s Taurani also said the e-commerce segment could report the best growth (30%-40% YoY) within digital advertising in India – much ahead of search/social/display due to favourable regulations like Data Protection Bill and consumers spending more time on e-commerce platforms versus search platforms.

Media is all about eyeballs and engagement. With people spending hours watching Instagram Reels and YouTube Shorts for entertainment, the definition of what constitutes media is set to change.

What traditional broadcasters need answers to is whether the way forward is mergers or changes in their business models to stay both viable and relevant.