Size matters in fight with FAANGs

“Its not so much survival of the fittest, as survival of the biggest.” That was the verdict of one experienced media exec as they chewed over the Comcast/Sky deal this week.

It’s hard to disagree, as the sector’s largest established players scramble for even greater scale: Disney is in the process of taking over Fox, and AT&T’s $85bn (£65bn) purchase of Time Warner dwarfs the Sky transaction.

These are eye-watering sums, and such is the premium Comcast ultimately paid for Sky that it’s hard not to raise an eyebrow.

Yet, with all its competitors out there consolidating, and the threat of the FAANGs seeming set to grow, it might have been more dangerous for the domestically focused NBC Universal owner not to have struck this deal.

“That Sky is worth £30bn (to Comcast, at least) speaks to both the strategic imperative to get the deal done, and the quality of the business itself”

Certainly, it would have been all but impossible for it to have established a European footprint of Sky’s size with production and distribution capability of Sky’s scale via organic growth.

That Sky is worth £30bn (to Comcast, at least) speaks to both the strategic imperative to get the deal done, and the quality of the business itself. Perhaps the biggest endorsement is that while Comcast has placed a huge bet on Sky, it doesn’t feel like a terribly risky one.

Sky has disrupted itself many times over the years, so it hasn’t found itself lagging behind the market or consumer behaviour.

It launched broadband and mobile to build on its core TV service, got into high-end drama to help reduce its reliance on third-party movies and eye-watering sports rights, and invested in OTT when it began to emerge as a crucial platform of the future, even at the risk of cannibalising some of its higher-paying satellite subscribers.

Putting Sky and Comcast together increases their already significant buying power and builds on the thing that many of the traditional players have in their favour in the battle with the FAANGs: heritage and expertise in producing content, and the ability to vertically integrate to extract maximum value from it.

Producing and owning your own programming is still the most cost-effective model and the vast sums the FAANGs are splashing on content is in part because they do not have significant inhouse capacity to produce at the very highest level, or at a truly significant volume.

AT&T chief executive Randall Stephenson recently told The Wall Street Journal that Netflix was the Walmart of streaming video services, while HBO was the Tiffany’s.

I’m not sure the analogy holds true entirely, but it is clear that established players are going shopping with an eye to taking on their new rivals. Their spending won’t stop here.

Chris Curtis is the editor of Broadcast