Content is king - but does it rule alone?
The desire for companies to own content is driving M&A activity. It's crucial to engage and retain consumers. But is it the silver bullet everyone's making it out to be?
Dear readers,
We are living in unprecedented times. As consumers, we spend more and more time in front of screens, consuming digital content. The acceleration of AI will further reinforce this trend. As I had pointed out in an earlier post, the most valuable resource in today’s economy is the attention of consumers. And the battle for it between companies is intensifying daily.
One area that will move back into the spotlight in light of this, fueled by favorable interest rates and a US government that seems to be throwing overboard most guardrails at the moment, are mergers and acquisitions. Simply put: companies will do a complete 360-degree around them to identify attractive targets to acquire and bolster their own business - all in service of bulking up for the war for attention. The capital is eagerly sitting on the sidelines, waiting to be deployed. As one corporate development executive of a large entertainment conglomerate mentioned later in this post told me last week: “A lot of funds want to deploy 40, 50 million - and more - into individual companies right now.” 2025 has all the ingredients to be a breakout year for M&A.
It only seems appropriate that consulting firm Bain & Company titled its newly released M&A report focused on the entertainment sector “Own the consumer, own the IP. Or own nothing.” While the title itself is a bit sensational (for obvious reasons) and lacks nuance, I don’t disagree with the essence of it. Content is vital to attract consumers. It is important to retain customers. Strong content and IP offer opportunities for differentiation and consumer engagement across different consumer touch points - the quintessential foundation for a successful transmedia strategy (the focus of a future post that is in the works).
But is it a panacea?
Let’s look at the major takeaways from Bain’s report:
A desire to own content is fueling M&A activity more broadly
Repeat acquirers reap far greater benefits from the acquisitions, 130% greater shareholder returns to be precise for deals done between 2012-2022
M&A deal volume for entertainment in 2024 is 54% off from the average deal volume from 2015-2022
There are far more cross-sector deals in the entertainment space, other 50% already, showing that companies branch out in their reach for content to be active across touch points
Gaming especially, which is a highly effective medium in terms of engaging consumers that has both generated highly successful original IP (e.g. The Last of US, Fallout) as well as leveraged IP to create successful games with (e.g. Harry Potter), is seeing a lot of activity outside of the gaming sector
The overall message: Own the consumer, own the IP. Or own nothing.
Here’s my assessment. Content, and especially big IP, is definitely important and it has to play a key role for entertainment companies. But not limited to high quality, big IP, nor is it the only aspect that matters.
Content alone is not enough
Look at the growth of YouTube: the content that is fueling the rocket ship are short form videos created by millions of creators, not a high quality production studio. YouTube has the technological and algorithmic chops to create and deliver content at scale, learn from engagement, and funnel the feedback back into its system to refine both content and distribution.
Netflix has arguably mastered the content and IP flywheel. While they have high quality content, most of their shows and movies are a solid 7 on a scale of 0-10, whereas the critically acclaimed shows are often found on HBO (it’s actual name is MAX, but I’ll keep calling it HBO because whoever approved that rebrand is in the wrong job). Netflix leverages the power of content to keep people in their service. 7s are sufficient to keep users satisfied enough. They cost less to make and you can make more of them. The result: Netflix’s churn rate sits at a highly competitive 2% per month. Compare that to Disney+ and its 5% monthly churn rate, the difference is astonishing. Disney+ effectively has to reinvent, meaning re-acquire, its entire subscriber base every 2 years.
Just look at last quarter’s earnings. Netflix raised prices and added 19 million new subscribers. Disney+ added prices and lost 700K subscribers. Owning IP alone is not enough. You need the operating model and the distribution powered by highly scalable technological infrastructure and AI that constantly learns to improve both the content recommendations made to consumers as well as figure out what content to produce in the first place. 7s beat 10s - at least for now.
Lastly, I expect M&A activity around video gaming companies to pick up significantly. While consolidation in the gaming industry is well underway and expected to continue, I expect the acceleration of M&A activity to come from non-endemic companies buying gaming studios and publishers. These acquisitions make sense partially because of the IP involved, if the game’s IP has a strong enough fan base and broad appeal.
However, the two following aspects make gaming acquisitions even more relevant for non-endemics: 1) complementing an existing service offering with games to own an additional, and powerful, consumer touch point to fuel the growth of the overall offering, and 2) accessing the technological skills to deliver immersive experiences and bring existing IP ownership into more immersive environments. The New York Times and its push into games, which is the dominant driver of growth of its overall digital subscription, is a great example of the first reason. Disney’s investment into Fortnite creator Epic Games is an illustration primarily of the second reason. The importance of video games to companies in virtually all industries is the key theme I discuss in my forthcoming book Press Play.
Recipe for success
So if the recipe to success isn’t as simple as simply owning IP, what are the necessary ingredients? Based on the above, it’s owning content, intelligent technological infrastructure to deliver at scale, diversification of consumer touch points, and the ability to offer users immersion. A lot of the companies at the forefront of this are the usual suspects. So here’s my take on who the dark horse in this race is: New Paramount, the merged company after Skydance Media acquired Paramount Global
It has a strong existing IP catalogue (Mission Impossible, Terminator, Anchorman, Yellowstone, South Park). It knows how to produce new great content and take it to consumers. It has an existing streaming service, with over 70 million subscribers and a monthly churn rate of 6% (which is better than Apple TV+’s churn rate of 8%). It has a gaming studio and the talent to make video games. And: it’s the Ellison family, meaning there’s a lot of expertise in terms of computing power and technology in the background (plus really deep pockets, which help too).
One thing is clear: owning content is better than not owning content. That alone will drive M&A activity in the entertainment sector, but also more broadly. But while content is king, it certainly doesn’t rule alone.