Will Media’s Quest for Scale Ultimately Lead to Extinction?
The flurry of media mergers and consolidations over the last 2 years has reinforced the concept that scale is necessary to effectively compete in this new, disrupted entertainment landscape. But while watching The Day the Dinosaurs Died (ironically, on Netflix) I had a bit of a revelation that media’s rush to get bigger in order to survive may be misguided and even downright dangerous to the future of these behemoths.
The Day the Dinosaurs Died describes the fascinating chain of events that occurred after a mega-asteroid hit the earth off the coast of what is now the Yucatan peninsula some 66 million years ago. According to scientists, dinosaurs were the largest “apex predators” of the time. But because of this they were actually the hardest hit by the resulting impact. More on that later.
The equivalent apex predators in today’s world of media are the horizontally and/or vertically integrated corporations that have been bulking up in order to compete in the streaming wars, as well as the large tech companies that have muscled their way into the space. The sharp-elbowed game of content creation, licensing and distribution (and of course, advertising) between the many players is getting even sharper. In this world, bigger means having more power and leverage to negotiate across multiple fronts and the ability to better defray costs across a large footprint.
AT&T swallowing DirecTV and later Time Warner; Disney gobbling up Fox’s assets; Discovery buying Scripps; Facebook, Google and Amazon being so inherently huge for so long; and even Netflix endlessly growing its debt to capture ever more subscribers and high-profile content are just a few examples of the “bigger is better” approach that’s been the accepted path to greatness. And let’s not forget Viacom reuniting with its CBS brethren, yet continuing to get penalized by the markets for still being too small.
However, size and scale can become a negative, as was ultimately the case in the dinosaur era. It turns out that the majority of dinosaurs did not die directly from the asteroid’s impact. Instead, the force of the crash (it was traveling at an estimated forty-five thousand miles per hour) spewed millions of tons of displaced rock, dust and debris miles into the air, producing a thick dust cloud that rapidly spread across the planet. The cloud blanketed the atmosphere and blocked out all sunshine, which turned the earth cold, halted photosynthesis and destroyed the food supply, leading to a complete collapse of the food chain and mass starvation. The largest beasts who required the greatest amounts of sustenance in order to survive were the hardest hit, and quickly died out.
In our modern media saga, the winds have again been shifting and the apex predators of today may also be the most vulnerable. Activist investors calling for divestiture and new management (in the case of AT&T); increased governmental anti-trust and privacy scrutiny (Facebook, Google); overpayment for lackluster assets (AT&T, Disney); messy cultural fit (AT&T/Time Warner, Viacom/CBS); and investor hyper-sensitivity to small shifts in subscriber numbers and constant skittishness regarding debt load (Netflix) are just some of the hazards that have recently surfaced in the race to scale.
Not to mention that the top-heaviness and bloated infrastructure usually needed to support such large companies generally creates entities that are slow to respond or pivot, which is an increasingly important ability in today’s ever-evolving media reality. It also makes them reluctant to take chances on lower-margin areas that don’t serve their big balance sheet requirements, even if they do serve an emerging customer need – a classic Innovator’s Dilemma situation.
Plus, these companies have existed in a bull market for the past decade. The specter of a recession dust cloud could certainly block out the media giants’ sunshine and make them more vulnerable than their smaller, more nimble counterparts. When cost-conscious consumers start flexing more control over their entertainment mix, bundle backlash and non-stop subscriber churn could easily dry up the high volume of capital lifeblood needed to sustain their bulk and fuel their required growth.
But it’s not all doom and gloom. Let’s remember that in prehistoric times, the dinosaurs’ extinction heralded some positive developments as well. With those large reptilian predators out of the way, mammals (who were much smaller and required much less food) began to flourish. This, of course, led to our caveman ancestors and the proliferation of the human race.
Similarly, the leaner, more agile players could be better positioned to make the ongoing quick moves needed in today’s increasingly complex media terrain – provided they’ve been built around smart business models and sound financials.
So perhaps ViacomCBS is exactly the size that it should be right now. Maybe it should stand firm and stoutly ignore the constant drumbeat demanding that it get bigger. It’s a choice that just might help it avoid becoming too big to sustain itself during the next inevitable famine.
Virginia Juliano is the Founder & CEO of CobbleCord (www.CobbleCord.com), a disruptive startup that helps people cobble together personalized bundles of both free and paid streaming services. Its patented process uses customer content, device, internet and price preferences to craft a custom list of services for each user, empowering them to get the most from streaming and get rid of cable.
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