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The mega-deal between WarnerMedia and Discovery and a big French combination unveiled earlier this week are putting mergers and acquisitions into the spotlight for the European television industry, according to an analyst.
“The Warner-Discovery and TF1-M6 merger plans have dramatically pushed consolidation up European commercial television’s agenda,” Enders Analysis analyst Francois Godard wrote in a report Friday.
“Wave after wave of consolidation in the entertainment industry has progressively dwarfed European operators,” he explained about the trend. “In 2010, the revenues of the region’s largest broadcaster, the RTL Group, already amounted to just 20 percent of Disney’s, and by 2020 this ratio had halved. The last decade has seen the emergence of global vertically integrated content producers and distributors, such as Netflix and Amazon, and the spread of this model to Hollywood-based studios, while the likes of Facebook and Google have grown to become direct competitors to TV channels that used to be seen as ‘licenses to print money.'”
While European broadcasters are still profitable, “and some very much so,” Godard highlighted, “savvy investors believe this is looking suspiciously like the high earnings of printed newspapers circa 2007, or a Wile E. Coyote run over the edge of the cliff. Broadcasters are capturing a declining share of total video audiences and their capacity to finance attractive content is shrinking as talent is bid up by SVOD operators.”
The analyst then outlined two consolidation options that have emerged in Europe.
“The first path — heralded by Bertelsmann RTL Group — would aim at creating national broadcasters with the content scale to operate compelling online platforms” via domestic acquisitions, Godard said, calling this the “possibly more defensive but also more realistic” option.
The second path is “more ambitious but lacking a credible backer,” he argued. It targets “the never achieved idea of pan-European synergies, leveraging increased international appetite for non-English language content” by merging assets across borders, something that the likes of Italy’s Mediaset and Vivendi have talked about. “But its champion, Italy’s Mediaset, lacks capacity to deliver,” Godard concluded.
“The group is already the biggest broadcaster in Italy and Spain and has built a 24 percent stake in Germany’s ProSieben, with the remaining shareholding fragmented,” he explained. “The problem is, if the cross-border strategy is sound, Mediaset may be its worst possible proponent. Besides bringing in strong leadership to its Spanish division, Mediaset never extracted significant synergies from its two Mediterranean units, despite their cultural affinity.”
France’s Vivendi, owner of Canal+, had “vague ambitions of a ‘Latin Netflix’ when it first bought into Mediaset,” Godard said. “But last month’s agreement between the two for a phased decrease of the former’s stake in the latter seems to definitively close this avenue.”
Concluded the Enders Analysis expert: “In practical terms, the Bertelsmann consolidation path is the only one available now.”
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