Amazon Flexes Its Advertising Muscles and Antitrust Enforcers Look to 2024
The Most Important Story of the Week for 7-Feb-2024
(Welcome to the “Most Important Story of the Week”, my bi-weekly strategy column analyzing the most important (but often not buzziest) news story of the last two weeks. I’m the Entertainment Strategy Guy, a former streaming executive who now analyzes business strategy in the entertainment industry. Please subscribe.)
Even though we’re firmly into the second month of the year, I still feel a bit contemplative about the year to come. I’m happy I’ve gotten my strategy column—which I call the “Most Important Story of the Week”—back on a bi-weekly publishing schedule, but instead of focusing on the “news”, I feel drawn to bigger themes.
Take this week. Of the news stories that happened, the biggest is clearly Amazon moving all their customers to their “ad-supported” tier for Prime Video, then charging customers to remove ads. That’s a huge shift! And I’ll write about it this week, but when I think “monumental” or “ground shaking” moves that could come in 2024, that still means—for better or worse—mergers. If two of the eight major players in entertainment (traditional: Disney, NBC-Universal, Warner Bros. Discovery, Paramount, Sony; tech: Netflix, Amazon, Apple) decide to merge, the ramifications would echo throughout the year(s).
So I’m going to start this week looking at the state of antitrust going into 2024. Then we’ll talk Amazon’s big strategic shift. And we’ll close with some stories on distribution, an update on piracy (still atrociously bad!), a run-down on recent merger activity and more.
(As we went to “print” if you will, news broke about “Spulu”, the new joint sports venture between Disney, Fox and Warner Bros. Discovery. I’ll cover that next issue for sure, likely as the most important/biggest story.)
M&A Updates - An “Antitrust” Check In
If you stopped consuming antitrust news at the start of December, you might be forgiven for thinking that “antitrust” advocates were in retreat. The federal government failed to stop the Microsoft-Activision merger1, and the Department of Justice’s big trial against Google mostly failed to generate the headlines that a similar trial against Microsoft in the 1990s evoked. As such, most corporate lawyers, investment bankers and business leaders celebrated the DoJ and FTC’s failuresin 2023.
A lot has happened since then.
To close out the year, the FTC won an injunction to stop the merger between two pharmaceutical companies, IQVIA and DeepIntent. In mid-December, Google lost an antitrust suit in California, with big ramifications for its app store. But one case really had my attention:
That’s right, the FTC/DOJ successfully stopped the merger of Spirit airlines and JetBlue. The most interesting part, to me, is this number: $3.8 billion. That’s the value of the deal. That’s tiny in terms of mega-deals in this day and age.
That number should set the context for most future mergers. The three favorite deals of most entertainment observers are some combination of:
Disney (market capitalization $181 billion) to Apple ($2.92 trillion)
Netflix ($245B) to Apple (over $3 trillion total) or Disney to Netflix
Paramount ($8.7B) or WBD ($23.8) to someone, probably Comcast-NBC-Universal ($172B)
The Spirit deal collapsing should make you really, really, really question how deals of those size will escape scrutiny and/or pass muster in front of a judge. In all those hypothetical deals, the combined firms compete in the same industry (streaming) and in some cases multiple industries (linear TV and theatrical distribution). Moreover, the MGM-Amazon and Disney-Fox mergers provide a great case study that after studios merge, they make fewer films and shows than before, the exact shrinking of competition that worries regulators and (some) judges. Indeed, after the Spirit deal failed, Amazon walked away from a $1.7 billion deal with iRobot (of Roomba fame).
Of course, the Microsoft-Activision deal shows that even massive deals can still get approval. Big deals will keep happening. But the DoJ and FTC have a different legal strategy than past regimes. In the old system, the goal was to win every case. (As James Comey once called it, “The Chickenshit Club” was when prosecutors only took on slam dunk, easy cases.) The FTC and DoJ want to make it harder for firms to merge. Thus, they are much more willing to take companies to trial, even if that means potentially losing.
For any of the big, proposed entertainment mergers, the FTC or DoJ will likely try to stop them, especially if Apple is involved.
As we head into 2024, a lot of traditional antitrust observers—again including bankers (who want to do deals) antitrust corporate attorneys (who get paid to facilitate said deals) and business leaders (who want to build their empires and/or cash out)—will downplay the risks. But it will be genuinely harder to get massive, mega-deals approved in the current antitrust climate.
Also, not all change is linear! In entertainment, mergers continue especially for smaller companies. I kept my eye on this handful that either closed, speculated on, agreed to, or decided not to merge:
Dish Network closed its merger with Echostar, another telecom network.
The USFL and XFL agreed to merge.
Blumhouse and Atomic Monster closed their merger too.
Lionsgate and Entertainment One closed their merger as well.
Paramount Global continues to field offers from Skydance and Byron Allen.
And…Disney may have changed their mind on selling their TV stations. (See! Beware early M&A rumors.)