[Global Focus] Media War Launches to Hunt Content Giants

Heated OTT Battlefield... Life-or-Death M&A
This Year's Media M&A Six Times Last Year's, Largest Since '21
Industry Leader Netflix's Market Share Shrinks... M&A Expected to Continue for Now

[Asia Economy Reporter Yujin Cho] Amazon, the world's largest e-commerce company, closed a big deal on the 26th (local time) to acquire Hollywood film production company MGM. By acquiring MGM, which holds the film rights to the 007 series, Mad Max, and others, Amazon has launched a new offensive in the rapidly growing online video service (OTT) market. The acquisition amount, including debt, is $8.45 billion (approximately 9.5 trillion KRW), making it the second-largest acquisition in Amazon's M&A history after the $13.7 billion purchase of the U.S. grocery chain Whole Foods Market in 2017.

Earlier, U.S. telecommunications and media group AT&T also announced the establishment of an OTT joint venture by acquiring Discovery Channel. The M&A amount ($48 billion) is the largest deal in the media industry this year. The joint venture's corporate value exceeds $150 billion, comparable to Netflix ($222.9 billion) and Disney ($324.6 billion) in terms of valuation. Foreign media outlets evaluated that AT&T's move to seek a new strategy less than three years after the mega-deal to acquire Time Warner (the predecessor of WarnerMedia) in 2018 reflects the urgency of being left behind in the OTT market.

◇ Heated OTT Front... M&A at Stake = Such alliances and mergers in the media industry were structurally predictable. The OTT market, which had been on the rise due to the side benefits of theater closures and increased remote work caused by COVID-19, exploded in growth last year. New entrants rushed to capture the suddenly expanded market, and companies forced into excessive competition bet heavily on M&A. Traditional media giants that failed to adapt to the OTT paradigm shift, such as Verizon's sale of America Online (AOL) and Yahoo, also engaged in M&A to cut losses.

As a result, the scale of M&A in the media industry this year soared to the highest level in 21 years. According to financial information provider Refinitiv, the M&A transaction amount in the media sector exceeded $240 billion (approximately 268 trillion KRW) as of the end of May this year. This represents a 640% increase compared to the same period last year and is the largest amount since the global market was stirred by AOL's acquisition of Time Warner (182 billion KRW) in 2000.

◇ OTT Paradigm Shift... The New Battleground is ‘Content’ = In this context, The New York Times (NYT) reported that as OTT becomes mainstream, content is emerging as the new battleground. Amazon, which invested $11 billion in content production last year, shifted direction this year by acquiring MGM, recognizing the limitations of its content capabilities.

MGM, acquired by Amazon, was established in 1924 at the dawn of the film industry and owns blockbuster hits such as the 007 series, Mad Max, and The Pink Panther, which led Hollywood's golden age. The U.S. economic media Forbes evaluated that through this acquisition, Amazon secured a foundation to produce new content based on MGM's vast original content library of 4,000 films and 17,000 TV shows, as well as its intellectual property (IP).

The reason Netflix has maintained a dominant market share in this sector for over a decade, and Disney Plus rapidly expanded its subscriber base in less than two years since market entry, is precisely the power of content. Marco Caggiano, head of North American M&A at JP Morgan, said, "OTT latecomers are actively using M&A to gain a more advantageous position in securing exclusive content."

◇ Will It Shake the Market Landscape? = Content competitiveness is expected to be a major variable that changes the OTT market landscape. Currently, more than eight companies compete in the global OTT market. Netflix, ranked first, has about 207.6 million subscribers worldwide, not far ahead of second and third place Amazon Prime Video (175 million) and Disney Plus (103.6 million).

Additionally, recent entrants in the past two to three years such as Apple TV (42.6 million), Peacock (42 million), Hulu (41.6 million), HBO Max (40.6 million), and Paramount Plus (9 million) are aiming to become rivals to Netflix by strengthening their original content.

According to global market research firm Ampere Analysis, Netflix's market share shrank significantly from 29% in 2019 to 20% last year. The entry of new players and intensified competition have begun to break Netflix's dominant share that lasted over a decade. Netflix's new subscribers in Q1 this year were 3.98 million, a 25% decrease compared to 16 million in the same period last year, and below Wall Street's expected figure of 6.25 million compiled by Refinitiv.

Matthew Thornton, an analyst at Truist Securities in the U.S., said, "If OTT companies increase original content through M&A of content companies, Netflix's existing content will naturally decrease."

Foreign media expect large-scale M&A to continue until the OTT market matures. The Wall Street Journal (WSJ) reported, "Now other competitors face the decision of whether to make similar choices," adding, "Market attention is turning to Comcast and ViacomCBS." Comcast, which launched Peacock in July last year, owns broadcaster NBC, film production company Universal Studios, and numerous cable channels.

U.S. economic media CNBC noted that Comcast and ViacomCBS might acquire smaller companies to secure global competitiveness in OTT services, but conversely, they might also consider selling. Potential acquisition candidates include Amazon, the AT&T WarnerMedia-Discovery joint venture, Apple, and Netflix.