The emergence of online entertainment companies

In recent years, the emergence of online streaming has come at a cost to many traditional satellite and cable companies. Many consumers have already “cut cords” with their conventional suppliers in favour of cheaper online alternatives such as Netflix, Amazon Video and Hulu.

The pay cable industry lost 762,000 subscribers in Q1 2017, a 440% increase compared to 2016…

Lately this trend has accelerated. A report by MoffettNathanson found that the pay cable industry lost 762,000 subscribers in Q1 2017, a 440% increase compared to 2016. Simultaneously, Netflix continues to dominate and has now amassed over 100 million subscribers.

With the market changing so rapidly, firms have been forced to respond. ESPN – an American sports media conglomerate – has seen a 12% reduction in subscribers since their peak in 2011. In response, Walt Disney, majority owner of ESPN, recently invested a further $1bn with BAMTech, a video technology group, and announced plans for its own online sports channel. Bob Iger, Disney’s CEO, has made his company’s attentions clear, claiming: “the future of this industry will be forged by direct relationships between content creators and consumers”.

Consolidation would allow firms to spread the high fixed costs associated with content creation and distribution among greater consumers – increasing profitability (…)Discovery Communications recent purchase of Scripps Network for $14.6bn is a prime example…

The momentum is set to continue. Facebook, Twitter and Apple have each sought to enter (or have entered) the lucrative broadcasting business. With both traditional cable companies and new competitors moving into the online space, one must question how many firms can realistically survive in an increasingly competitive market. In an industry where it pays to be big and content is king, only those offering the most appealing packages will be able to maintain a sufficient stream of paying customers.

Firms may feel the need to embrace the opportunities M&A transactions offer. Consolidation would allow firms to spread the high fixed costs associated with content creation and distribution among greater consumers – increasing profitability. Discovery Communications recent purchase of Scripps Network for $14.6bn is a prime example. With this in mind, we may see major changes over the coming years in the entertainment space.

More significantly, such stories are not isolated to entertainment companies; the capabilities of the internet are driving systematic transformations. In today’s world, it is evident companies cannot be complacent – they must innovate, adapt and implement, regardless of their current prominence. Without this, today’s winners will be tomorrow’s losers.