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Big Tech Might Sit Out the M&A Wave

While media pundits hone their prognostication skills to determine what the next merger candidate will be in the wake of AT&T-Time Warner (besides Comcast-Fox or Disney-Fox), most are dubious that any of those deals will include the companies that arguably started the whole rush for scale: Facebook, Apple, Amazon, Netflix and Google, popularly known as FAANG.

Amazon, according to reports, toyed with the idea of joining Comcast in its $65 billion bid for 21st Century Fox assets, but talks never advanced. Apple also was said to have been thinking of bidding on Time Warner before AT&T announced its deal in October 2016, but again decided to hold off.

Related: AT&T Completes Time Warner Purchase 

While there has been speculation for years about when the big tech companies would make substantial plays for traditional media targets, it’s become clear they might not need to make any big acquisitions to achieve their goals.

Going it Alone’s Good for Netflix

Perhaps the best evidence for that is Netflix itself. Netflix may have toyed with the idea of selling out early in its development, but the company built its current empire largely from scratch, buying rights deals for cable shows and, more recently, leading the industry in originally produced content.

Netflix may not be too keen on buying traditional media companies, having developed programming such as "Stranger Things" on its own.

Netflix may not be too keen on buying traditional media companies, having developed programming such as "Stranger Things" on its own.

Amazon and Facebook have dipped their toes into programming, but haven’t yet made the major commitment some have expected. Instead, Amazon re-upped its deal for streaming rights for NFL Thursday Night Football and bought rights for a 20-match English Premier League soccer package outside the United States.

Facebook has a deal to stream Mixed Match Challenge, a 12-episode show that airs on Facebook Watch featuring WWE Raw and SmackDown wrestlers, but hasn’t yet made a big financial commitment to video, either.

Amazon, of course, has Amazon Prime Video, which has been growing nicely, offering original scripted series and movies and streaming the back catalogs of other networks. Amazon Studios is expected to continue to be a big player in content, although it will likely lag Netflix, which according to UBS is believed to be spending about $12.6 billion on non-sports content in 2018. Netflix has said it plans to end the year with 1,000 original movies and series, including 470 that will debut in the second half of the year.

Related: Netflix Investing 85% of New Spending in Originals

Despite the lack of activity, Pivotal Research Group CEO and senior media and communications analyst Jeff Wlodarczak said he expects the tech giants to be buyers not builders. Also, there isn’t that much left to buy.

“If Comcast gets Fox, I don’t see that many attractive content assets left for the FAANGs,” Wlodarczak said, although Discovery Inc., which bought Scripps Networks earlier this year, could be a target.

Others say it doesn’t matter. The old way of doing business — studios produce shows and try to sell them to networks, which in turn monetize them in as many ways on as many outlets as possible — is fading away faster than many have expected. Amazon and Netflix don’t sell content to networks: they use it on their direct-to-consumer services. And that may end up being the future as we know it.

Related: Amazon Prime Exceeds 100 Million Subs

BTIG media analyst Richard Greenfield, who has been a big proponent of the new paradigm (and chides the old one with the hashtag #goodluckbundle), sees the tech companies sitting out this merger and acquisition wave.

“I wouldn’t expect a flood of M&A,” Greenfield told Cheddar TV. “The media industry, especially after we get through this Comcast- Fox-Disney transaction, it’s a pretty consolidated sector. I think most of the tech companies — take a Netflix, take a Facebook, take a Google — I don’t think they have a lot of interest in buying legacy media companies. I think they’d rather invest and build out content and programming.”

Usual Suspects Might Be Quiet

MoffettNathanson media analyst Michael Nathanson wrote in a note to clients that he couldn’t see a wave of deals in the wake of the AT&T-Time Warner ruling either. Nathanson said CBS could be a target because it offers strategic value through retransmission consent revenue, an OTT presence via CBS All Access and live sports rights. But, he said, if deals between distributors and programmers were that compelling, they would have been done before. He couldn’t remember any past potential deals between distributors and programmers held back solely because of regulatory concerns.

“In all the years, we have never been asked, do you think the DOJ would allow Company X to buy [AMC Networks] or [Lionsgate]?” Nathanson wrote. “Also, it is far from clear who the distribution buyers for these assets will be.”