Big Investors Eye Media Shakeup in Three Crucial Areas

big investors eye media shakeup in three crucial areas media c-suite

The Media C-Suite’s survey of Professional Investors point to changes on the horizon for Media & Entertainment as the Media Majors lead global audiences to derivative content they don’t really want, at quality levels they don’t really want, leaving those paying subscription fees chaffing at the bit.

Professional investors have an eye for change. 

Like ancient mariners, they can feel the winds shifting and have experienced judgement for which direction to set a new course on.  Sudden, unforeseeable change creates a degree of uncertainty that has to be crisis-managed until the skies clear and a new direction can be seen.  For the largest corporate vessels, crisis is unwelcome.  It takes a lot to change course if you are big and slow.

But for smaller craft, crisis can become opportunity.

This is what professional investors are continuously scanning the horizon for:  a divergence between the largest vessels reliant on momentum and the smaller, more nimble craft that go where prevailing winds demand.

For the Media and Entertainment industry, that tempest was Netflix and the delivery of content over the internet in what we now call OTT, Video-on-Demand or simply, Streaming.

The giant, multi-billion dollar publicly-listed media conglomerates have had to change course dramatically since Netflix disrupted their hegemony.  The stable stream of revenues from television advertising and cinema box-offices, effectively controlled by these Media Majors, have given way to Streaming subscriptions.  To compete with Netflix, each of the Media Majors effectively turned themselves into a version of Netflix.  This environmental change has taken ten years to play out, and the Media Majors are still in the process of changing course.

What allowed the Media Majors to become multi-billion dollar publicly-listed conglomerates before this change began was a long period of consistent control over delivery of entertainment content.  Television and the movies each had their own distinct delivery medium.  Mass transmission and mass marketing drove television and film content toward audiences.  Those audiences once comprised a highly-lucrative, passive marketplace that was always, and only, on the receiving end of content delivery.

No longer.

What Netflix changed forever was the audience.  Once audience choice entered the equation, economics shifted from what audiences might accept to what audiences want.

What Audiences Want

Ten years ago, the Media Majors were caught standing still by Netflix because Netflix was not a media company.  Not yet anyway.  Netflix was once a technology company that simply saw the economics of screened entertainment in a different way than Disney, NBC/Universal or Paramount could.  For the Media Majors, the idea of giving an audience an option on when and where a film or TV show was delivered to an individual viewer could simply not be conceived.  It was certainly not as a plus.

Netflix Co-CEO Ted Sarandos.
As Co-CEO and Chief Content Officer, Ted Sarandos spearheaded the disruptive use of predictive algorithms at Netflix. Image courtesy of Netflix.

Technology, then as now, offers something that the Media Majors, which now includes Netflix, find difficult to weather:  Choice.

What the Media Majors seem to be struggling with today is that audiences have been liberated from linear television and box office schedules by technology.  Those schedules provided the control that built the Media Majors.  It is in their DNA.  The question that CEOs at the Media Majors cannot seem to answer is, ‘what do we do now?’. 

Once liberated, it is unlikely that ever expanding global audiences will migrate to, or remain on, platforms that retain control over what content a user can watch, when and where.  While the Media Majors struggle under a previous generation’s business model by seeking to retain or restore control, a small army of entrepreneurial media-tech companies are rapidly moving in a different direction.

What Investors are Watching

A recent survey of Professional Investors by the Media C-Suite reveals that deal flow is being cultivated in three key areas with an eye on how the Media & Entertainment industry is evolving.  Technology is the driving force for all three and Professional Investors with an experienced track-record in the tech-startup ecosystem have quickly taken the lead on deals in pursuit.

Sports Fans

In 2019, live televised sport consumed roughly 8% of linear TV viewing time in the US, but accounted for over 31% of US linear TV ad revenues according to data from Nielsen Sports.  Today, in the US alone, sports viewing accounts for approximately 25% of the average viewing time on linear television and cable. 

Globally, that figure is thought to be considerably higher, and growing fast. 

Dedicated and numerous, sports fans show up, tune in and stay connected.  That may be why nearly all of the Media Majors are talking about sports as a strategic pivot to attract and hold onto Streaming subscribers when other entertainment content cannot. 

But while some talk, others are making moves that may leave the Media Majors wanting.

Headlines on high profile strategic investments from the likes of Ryan Reynolds and Saudi’s Sheikh Mansour have touched the surface of investor interest in global sport such as football just as technology is offering ever greater access to fans around the world.

Actor, Entrepreneur and Investor, Ryan Reynolds.
Actor, entrepreneur & investor, Ryan Reynolds pitch-side at the English National League match in Wrexham, Wales, April 22, 2023. Image credit: Oli Scarff/AFP via Getty Images.

So lucrative is the future of televised sport that one of Private Equity’s leading tech investors has been busy buying into sports across the board, and around the world,as the business of sport begins to merge into tech-enabled global content distribution and delivery.

The US Private Equity firm, Silver Lake, has acquired stakes in Rugby, Football (Soccer), Baseball and now professional fighting.   Its holdings include a minority stake in New Zealand’s All Blacks Rugby Union team for US$133 million, controlling interest in Diamond Baseball Holdings for US$280 million and just under 15% of City Football Group, the holding company of top ranked Premier League club Manchester City (among others), for which it paid an estimated US$700 million. 

Silver Lake made additional headlines recently with the acquisition of a controlling stake in the World Wrestling Federation, or WWF, at a valuation of US$9.3 billion. 

Unlike the global business of film and television production, the business of televised sport is consistent, sophisticated and organised.  But it is the dedication of fans across all televised sports that makes investment into this side of entertainment appealing to Professional Investors.

Philippe Grothe, a highly experienced sports rights management professional told the Media C-Suite that the value of media rights across sport have been increasing consistently for 30 years.

“That is the core business of professional sport, media rights.”  Mr. Grothe says.  “There is desperate demand for sports content and demand is growing everywhere.”

Mr. Philipp Grothe
Mr. Philipp Grothe, manager of sports media rights focused on professional football and closely affiliated to some of the largest club acquisitions. Image courtesy of Mr. Grothe.

“When one looks at global football only, there are billions of fans with a dedication that rivals any organised religion.”  Mr. Grothe says.  “Those media rights are incredibly valuable.” 

The Media C-Suite will dedicate an up-coming article to the developing business of sports. 

Web3

Don’t confuse Web3 with the Metaverse.  That may be where Mark Zuckerberg went wrong.

Instead, think of Web3 as the next iteration of the internet specifically structured to spread the benefits of transparency in commerce and ownership.  The Web3 sector was initially overshadowed by the hype of cryptocurrency exchanges, decentralised finance companies and NFTs.  But it also includes transparent distribution networks, which is increasingly beneficial to the creator economy, and those who want access. 

Think content. 

Coupled with enigmatic terms such as crypto, decentralisation and blockchain, Web3 has been viewed with caution by many Professional Investors, with funding trends into decentralised lenders and crypto exchanges being tapered back significantly in recent months. 

But as a production, funding and distribution platform for content, Web3 seems to hold more than promise.  While both media and the current internet are inherently control based economies with ownership of data and intellectual property rights being highly concentrated in a small number of Media Majors, Web3 offers the utility for all story-tellers to democratise both the production of content and its delivery. 

“Web3 technologies can provide an infrastructure that is inherently decentralised and democratic to better fund, produce and distribute entertainment content.” says Phil McKenzie, COO of Goldfinch and CCO of Myco while talking to the Media C-Suite.  “Providing the tools and access to a far wider group of filmmakers and far greater engagement with their fans.” 

“The media industry is one of the most centralised, hierarchical and opaque.  This creates huge barriers to entry for anyone attempting to make a film.”  Mr. McKenzie says.  “Web3 offers a solution.” 

The existing content supply chain for the Media & Entertainment Industry is intentionally throttled by controls over finance and distribution.  Unless lucrative copyrights are transferred from the creator of content to the distributor, typically for a fraction of their realised value, that content isn’t going to be seen.  Content distribution for both films and TV are effectively controlled by the Media Majors.  Music faces a similar proprietary hurdle for access to audiences.

Mr. Phil McKenzie
Mr. Phil McKenzie, COO of Goldfinch, a media venture firm and finance vehicle pivoting to Web3. Image courtesy of Goldfinch.

Web3 turns that equation around. 

“We now have the opportunity to invest and build an alternative infrastructure of production supply chains, distribution and delivery of content for today’s generation of creators.”  Says McKenzie.  “That same infrastructure then offers access to today’s audiences that want more variety, more choice and more direct and regular engagement than yesterday’s media industry is capable of providing.” 

“For investors in the media space, Web3 is more than an interesting tech trend.”  McKenzie reports.

This tracks with data on VC funding for the Web3 sector, which cratered over the last year according to Cruchbase’s Web3 Tracker.  Investors have pulled out of the crypto space and are now holding back on decentralised lending. 

 “Instead of pouring big money into the next exchange or lender, VCs seem to be concentrating on blockchain infrastructure players to help build the foundation for Web3.”  According to Crunchbase,

After a pause in VC deals during the fallout from Silicon Valley Bank’s collapse, tech investments are picking up again.  These included a US$100.9 million Series A round into QuickNode, a blockchain development platform that accelerates development and scaling of Web3 apps. 

That round was led by Tiger Global Management.

A more in-depth article on Web3’s future within the Media & Entertainment industry will be published soon.

AI

All media outlets seem to have daily stories about Generative AI, particularly Open.ai’s ChatGPT and its immediate analogues.  But artificial intelligence is much more than computer generated novels or plagiarised answers to medical school exams.    

Artificial intelligence is already in use by the Media Majors, of course. 

AI models are at the heart of the predictive algorithms for what to watch next on your favourite Streaming platform, or what content to produce next.  It takes sophisticated AI to cheaply and quickly model digital worlds and special effects on a budget for today’s film and television productions.  Artificial intelligence is also essential for the digital marketing of modern theatrical runs and the season premiere of the next prime time series to global, multi-lingual audiences. 

These crucial elements of modern commercial entertainment were once the exclusive domain of the Media Majors and the very large budgets that they could provide for content production and delivery and for the development of AI systems to assist.

The largest Media companies have the advantage of established distribution networks and the human capital with relationships that help maintain those networks.  Big Tech is right there with them.  But the proliferation of artificial intelligence into the public domain as a cheap tool for anyone to use changes that equation.

What artificial intelligence offers today is the means for a very small media company to compete with the largest of the Media Majors on nearly every level.  That is what Professional Investors are looking out for.

Productivity is the value of AI in the Media space, not creativity.

“Big Tech companies with massive investments in AI are not going to let their incumbent distribution advantage slip away easily,” Konstantine Buhler, a partner at leading tech VC Sequoia Capital recently told Reuters.  But Buhler is actively scouting for AI enabled productivity apps on the believe that “disruption is inevitable.”

Konstantine Buhler
Mr. Konstantine Buhler, Partner at Sequoia Capital with a focus on Seed and Early Stage venture capital. Image courtesy of Sequoia Capital.

Artificial intelligence offers a force multiplier effect, allowing smaller companies to punch above their weight.  Investors are on the lookout for any technological advantage that helps make a smaller challenger stand out on the field or step ahead of the larger Media Majors into territory that they haven’t mastered yet. 

And this is already being demonstrated with marketing, publishing and content production companies.  But the ability for AI to enhance audience experience in ways that the Media Majors have difficulty imagining may be the holy grail for Professional Investors. 

One such example has drawn the attention of Professional Investors, the Masters Tournament App.

Developed by IBM, using over a dozen different AI models, the Masters Tournament App provides a personalised experience of Golf’s premiere invitational tournament.  This includes following any player or players, seeing any and every shot, and customising the AI commentary for their personal interests.  Anyone with the free app can then cast it onto a big screen for an audience wanting something more than TV can provide. 

Chad Mumm, Chief Creative Officer at Vox Media Studios offered some insight on his Twitter feed:

“I talked to a Netflix exec who said the engineers there consider The Masters app to be the best streaming app in the world (outside of Netflix of course).”  He posted.  “Hard to disagree.”

Chad Mumm.
Mr. Chad Mumm, Chief Creative Officer at Vox Media Studios. Image credit: Wikidata.

One user with the Twitter handle of “Awww…Bless Yer Heart”, fronting a rather high-profile retired US General with serious political and commercial pull replied:

“… if I ever get a web site streaming project budget that’s big enough, I’m tracking down whoever is in charge of The Masters site and telling them to name the price.”

At some point, that same technology will be applied to every live event to be enjoyed by billions of fans around the world in a way that they want to enjoy it, offering something the Media Majors have a great deal of difficulty with:  Choice. 

Think Rock Concert, Festival or, wait for it … the World Cup.


Correction: We originally reported that Silver Lake acquired a controlling stake of World Wrestling Federation, WWF, for “a price of” US$9.3 billion. This should have been reported as a “valuation of” US$9.3 billion. This has been corrected.

8 Comments

  1. Credit where it’s due. I just wrote up an investment memo on allocating to media-tech for our portfolio guys. This article, and a few others on this site, have supported that work. Well received by my boss! I hope you guys can keep up the good work!

  2. All of the tech companies are running for media. Crypto and metaverse was a huge distraction. The application of all that capital into tech companies for all those years has to be directed somewhere now. Adtech, fintech … everything leads to mediatech. I don’t think the big studios know what’s coming!

    • I tend to believe that the senior execs at the Media Majors see what’s coming. The question for professional investors holding shares in those companies is, Do they know what to do about it? So many entrepreneurs that we speak with certainly do.

  3. An insightful article as always. What I think is really interesting as well is the need of how the various players within the sector, IP owners, creatives and storytellers, content aggregators, financiers and others play and do business together. That’s an area that hasn’t seen the kind of industry wide, tech-based improvement within business practices, processes and use of data (and analytics) to improve matters for all stakeholders.

  4. Great Article. Its why I love the Media C-Suite. You can’t really find this type of content anywhere else easily. It allows me to stay up to date with recent developments in one place.

Leave a Reply

Previous Story

Is User Data Sold by Google Being Purchased by Killers?

Next Story

The Advertising Apocalypse That Never Was