Mega Companies Joining Forces In The Face Of Upstarts

Major incumbents collaborate to fend off disruptive threats

Last year, Walt Disney bought 21st Century Fox for $52.4bn. This June, AT&T bought Time Warner Inc., combining Warner Bros., HBO and Turner under the AT&T umbrella. Similar mergers are happening throughout the media industry, including the bid by Comcast to buy Sky. This acquisition craze shows just how keen big media companies are to maintain their hold on the shifting sector, and build huge on demand content libraries for consumers. As well as acquiring each other, a conglomerate of media giants has adopted another strategy to remain relevant in the industry.

A new market for on demand viewing

At the end of next year, ex HP Enterprise CEO Meg Whitman and ex Walt Disney chairman Jeffrey Katzenberg will launch their answer to on the go viewing: NewTV. The venture, owned by Katzenberg’s holding company WndrCo, aims to provide a quality video service for mobile audiences. To date, it has raised $1bn from investors including Alibaba, Disney, Fox, MGM and Sony. NewTV represents a new tactic of working together to navigate the threat from disruptors like Netflix and Hulu. It aims to tap into a new market by providing snackable, premium video content for mobile first viewing.

NewTV’s target audience is older millennials (aged around 30) who spend vast amounts of time on their smartphones, and who don’t have the time or inclination to watch feature length episodes. According to Katzenberg, NewTV’s mobile focused platform is not designed to compete with Netflix and similar streaming sites… Not directly, anyway. The idea is that consumers will still watch on demand series and films, but when watching content via mobile, they will use NewTV. What’s interesting about NewTV is that it demonstrates a shift in incumbent mentalities. Instead of going head to head with disruptive competitors, they are taking a risk by doing something different. Rethinking their core product and services means that they have the potential to create a new market for on demand viewing. And therein lies the risk – whether or not the market will take off remains to be seen.

If you can’t beat ’em, join ’em

Traditional business philosophy is inherently self interested. A company makes a product or service, guards their intellectual property (IP), delivers the product or service to the consumer, and generates revenue. The gradual transformation of markets by digital disruption and innovative upstarts has led to new approaches that favour collaboration, partnerships and acquisitions. Nowhere is this currently more obvious than in TMT (Telecoms, Media and Technology), where PwC has found that over 75 per cent of CEOs view partnerships as ‘important’ or ‘critical’. This is a theme that runs across sectors. The obvious example is the pharmaceutical industry, where big pharmas have merged with their rivals to diversify their products, access new patents and enable innovation. The same thing is happening in banking too, where retail banks are teaming up with FinTech startups. What’s happening in media differs, though, in that companies are actively contributing to the same goal as a direct response to disruption. The advantages are clear – combining resources, whatever they may be, can win a larger market share and create economies of scale. The better your resources, the better your products and services. Big businesses have found it difficult to collaborate for various reasons, including concerns over IP and an ingrained commitment to traditional, insular business models. In the wake of mass disruption, these notions are slowly breaking down.

As shown by media and entertainment, incumbents are struggling in the saturated markets they previously dominated. However, they can identify new opportunities by pooling resources and stepping away from isolation. This fundamental shift in big business thinking negates the risk of pursuing a new idea by pursuing it together. This collaborative trend could transfer to meaningful advances in sustainability and renewable solutions, just as it has influenced software development via the open innovation movement. NewTV seems to prove that incumbents are happy to work with their competitors to navigate disruption. Whether this strategy will be repeated across sectors remains to be seen, but that’s something worth watching.

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