Shake up in the media market

By Robin Tozer

The news that US telecoms giant AT&T is spinning off its media assets, including HBO, in a multi-million deal with TV company Discovery is a signal of the retreat from the media industry by telecoms companies.  Earlier this year, Verizon sold a bunch of media assets it had acquired like The Huffington Post to a PE house. At home, BT is looking to sell a stake in BT Sport as it begins to focus its energy on delivering superfast fibre broadband across the UK to meet ambitious Government targets.

Initially, telecoms companies loved the idea of becoming media players. As the mobile revolution faded, they were envious of the returns being made by the big media companies.  Telcos thought these businesses were making money off the back of telecoms companies' customers and the infrastructure they provided, be it cables, wires, or mobile phones.  Media was sexier and offered bigger returns. They wanted a slice of the cake.

In the UK, this idea of convergence where telcos provided customers with a package that included phone, broadband, TV and mobile was driven by the battle between Sky and BT. Angered by Sky's move into broadband, and the conversion of BT customers, as Sky's cross-sold to its TV subscribers, BT took the Champions League from Sky. BT's TV ambitions were not going to stop there, and they talked about usurping Sky in sports, as well as developing original dramas and launching an entertainment channel.

What stopped them? Money and politics.

For BT, the investment in sport helped maintain their broadband revenue but never really converted to growth. They were giving it away for free to stop broadband switching but didn't attract the glut of new subscribers they hoped. The cost of sports rights grew (even Sky's interest in sport has somewhat wained), and it was clear BT was late to the original content party. Trying to compete with the likes of ITV, let alone Netflix, would have been massively expensive, with no guarantee of an audience. The need to deliver 5G, and the Government's demand for the roll-out of ever faster broadband meant BT, through its Openreach division, needed to commit more resources. The threat of Openreach being forcibly spun off loomed large. MPs, especially in rural areas, were not going to sit quietly while BT bid for evermore sports rights, while their constituents could not access the internet. 

In America, the telcos have run up against deeper pockets, In the 90s, telecom companies were the big beasts of the corporate world, but the mobile market matured. It was not just telecoms companies. The TV giants struggled in a world with less advertising revenue. Movie studios faced rising costs and falling cinema attendances.

Power shifted to the tech giants such as Facebook, Amazon and Apple. The world of TV and film is increasingly being dominated by a few significant players – Netflix, Disney, and Amazon.  Big pockets, massive franchises like the Marvel Universe spanning film and TV, and series cost hundreds of millions of dollars has raised the stakes. The news that Amazon is buying MGM, the Bond franchise and all, underlines the power shift.

Coming up in the rear view mirror is Apple. Its TV offering has not really got going yet, but the next 12 months see the launch of a few major TV series, including sci-fi epic, Foundation and Masters of the Air. This series, which follows US bomber crews in England during WW2, is the second follow up to Band of Brothers. Apple outbid its original home, HBO, to secure the series produced by Tom Hanks and Steven Spielberg.

What's the future? Aggregation, not convergence. BT and Sky will offer some of their own content, but their boxes will increasingly house content from others. My Sky Q box allows me access via separate subscriptions to Netflix, Amazon Prime Video, and Disney+, among others. The likes of BT will become resellers of others, providing a handy one-stop-shop. A supermarket for TV. They provide the hardware, marketing and support. The streaming services provide the content.

The good news for BT and its shareholders is that fibre promises ever-better returns in the future. In the past, it was a struggle to get households off the cheapest broadband packages. More streaming, more connected games consoles, and a nation doing more and more work for home means a growing demand for better and better broadband.

Laying cables in the ground may not be as sexy as a movie premiere, but offers to be very lucrative.