WarnerMedia-Discovery deal pressures ViacomCBS and NBCUniversal

Shari Redstone, chairwoman of ViacomCBS and president of Nationwide Amusements, reacts as she celebrates her firm’s merger on the Nasdaq Market web site in New York, December 5, 2019.

Brendan McDermid | Reuters

Within the phrases of the good Tom Lehrer, “Who’s Subsequent?

Now that AT&T has determined to separate WarnerMedia and merge with Discovery, the remainder of the media world — notably the smaller gamers — face new strain to make their countermoves.

Even earlier than this deal, it was clear that Lionsgate, MGM, Sony Photos and AMC Networks have been in all probability too small to compete in a streaming world the place success relies on an enormous retailer of content material and world attain.

However ViacomCBS and Comcast‘s NBCUniversal are a lot greater, and possibly assumed they’d a while — at the very least a yr — to see what number of subscribers signed up for his or her streaming choices, Paramount+ and Peacock.

“Inside the subsequent two years, it should be put up or shut up for all of us,” David Zaslav, Discovery’s CEO, who will take the highest job on the mixed firm, stated in December. “Are you able to present you are scaling? Are you going to be a participant within the U.S.? Are you going to be a participant all over the world?”

Underneath strain

That timeline is shorter now.

Abruptly, each ViacomCBS and NBCUniversal appear subscale as they try and put collectively world streaming providers. They don’t seem to be attempting to be area of interest gamers, equivalent to Starz or AMC+.

Meaning each will want extra content material to compete towards Netflix, Amazon Prime Video, Disney and no matter the brand new title of WarnerMediaDiscovery can be.

The plain transfer could be for ViacomCBS and NBCUniversal to merge. However a mixed ViacomCBS/NBCUniversal would have two U.S. broadcast networks — CBS and NBC — housed underneath the identical company roof. That will not fly with U.S. regulators. Whereas the mum or dad corporations might theoretically spin out or promote them, the published networks present a lot worth to each corporations — and their streaming providers — that it appears unlikely.

Additional, Chairman Shari Redstone controls ViacomCBS and Comcast Chairman Brian Roberts controls NBCUniversal by way of his household’s Comcast shares. Their dual-class share construction is one other impediment for each corporations, because it makes it exhausting for outsiders to strain the businesses to make adjustments the executives do not favor. But it surely’s not a deal stopper — Discovery had a number of courses of shares too, however John Malone was prepared to eradicate his voting shares to get a deal completed with WarnerMedia.

4 choices

That leaves Comcast and ViacomCBS with 4 doubtless choices.

Purchase. If each corporations really feel their streaming providers can compete all over the world, they will go on world and home acquisition sprees. It could take a number of offers to get to a scaled place, as they piece collectively smaller U.S.-based belongings and bigger world media corporations in Latin America and Europe.

Promote. They might additionally promote. Redstone is extra open to the concept of promoting ViacomCBS than her late father, Sumner Redstone, the previous chairman, was, in keeping with folks aware of the matter. It is unclear if Roberts would take into account promoting NBCUniversal. Potential consumers might embrace Amazon or the newly merged WarnerMedia-Discovery. Apple and Netflix proceed to hover alongside the periphery, however neither firm has ever proven a lot curiosity in making large media acquisitions.

Cut back their ambitions. The third choice is to throw within the towel on being a worldwide streaming service. As a substitute, NBCUniversal and ViacomCBS might license their content material to different, bigger streamers and wind down Paramount+ and Peacock in the event that they fail to achieve world traction.

Bundle. Possibility 4 is comparable however much less drastic. ViacomCBS and NBCUniversal might start bundling their streaming providers collectively or discovering new streaming companions to extend world distribution by way of discounted choices. The primary downside with this technique is it limits the upside for each corporations, who will not have the ability to compete with bigger gamers for prime content material and breadth of programming.

The fifth choice — inaction — is now not a viable technique. The strain is on Roberts, NBCUniversal CEO Jeff Shell, Redstone and ViacomCBS CEO Bob Bakish to search out thrilling go-forward options for his or her corporations.

Disclosure: Comcast owns NBCUniversal, the mum or dad firm of CNBC.

WATCH: What the WarnerMedia-Discovery deal might imply for the streaming wars

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