Content + Distribution + Exhibition + Audience = Revenue
That equation has worked since Edison’s Vitascope debuted in New York City in 1896. At various times in history, each addend in that equation has been controlled by various business stakeholders, each getting a piece of the revenue pie. The companies that earn the most own every aspect of the formula, but it all starts with the “Content.”
Back in 2007, while working with Brian Roberts and his team to craft Comcast’s vision of “Convergence” for his 2008 CES Keynote, I had the opportunity to see the most amazing business strategy deck. In a few short slides it made the case that Comcast’s legacy “Audience” would go the way of AoL or Virgin Music because their “Distribution” platform was becoming irrelevant.
Two years later, Brian bought NBC/Universal and became the CEO the the world’s largest media company. The combination of NBCU’s library and content production capabilities with Comcast’s unrivaled terrestrial infrastructure has allowed the new company to set the price of content for everyone else.
I was having lunch with a Shaw Cable executive a couple of years back and casually asked him why nobody at Shaw seemed concerned about the continuous loss of subscribers to Tellus. He laughed and said, “They don’t own any content. They can’t operate at a loss forever and we get to barter our cable networks for most of the other content we need.”
Shaw might have lost their way when they sold that content to Corus, but AT&T clearly gets it.
Cable companies have always been allowed to work together because they’ve made the case that their collective competition comes from satellite and tel-cos like AT&T and Verizon. Comcast’s acquisition of NBCU sets up a scenario where they have no real competition unless AT&T’s purchase of Time Warner, Inc is allowed to move forward.
Jeff Bewkes knew this as he spun off his cable company, focusing on content around the same time Comcast bought NBCU.
Disney is looking forward as well. Their investment in MLBAM hints at a world where Disney delivers their content directly to their audience over the internet. Their acquisition of Fox’s entertainment properties, Lucas Film, etc. further consolidates most of America’s long tail content among a few big companies.
Netflix seems to be going the way of a premium network like HBO. They will license less and less third party content as they build their own library, and micro targeting will eventually help them control production costs. However, where they used to be a leader in distribution platform technology, their home grown infrastructure may ultimately weigh them down.
This brings me to Amazon. I’ve been building OTT/IPTV and streaming video ecosystems for 13 years. I’ve watched Apple bring transactional VoD to the internet while Starz brought us OTT subscription services and ABC brought back the original sponsored series model. I know what is under the hood in Comcast’s X1 and at Cisco. Nobody has a better IP video distribution platform than Amazon. They can support every type of licensing/transaction model from subscription to purchase to rental to ad supported.
They’re also the only player out there with an “exhibition” platform in both the Kindle and FireTV. They have stumbled a few times in converting their massive Prime member base to a viewing audience, but Alexa will bring them into the spotlight.
That just leaves the most important ingredient: content. They’ve got an inside track on literary rights and have taken an aggressive posture on new content licensing. Their rights for the TV adaptation of the “Lord of the Rings” is the most expensive in history.
Like Netflix, they’ve started producing their own content with mixed success, but they need a real library with brand recognition and loyalty. The only real option is CBS. With a market cap of ~$20B CBS is hovering around its 52 week low. Aside from the CBS News synergy with other Amazon content acquisitions, CBS owns Paramount Television (Star Trek), Showtime, local CBS affiliate stations AND Simon & frickin’ Schuster.
Amazon has a market cap of nearly $700B and around $22B in cash on hand. Do you think this is on their radar?
There are some other options, but seem harder to me. Buy Viacom from the Redstones? Buy Sony Pictures/ MGM from Sony? If AT&T is denied by the government, Time Warner might be an option. There’s not much other content left. Tell me what you think.