The A24, HBO Deal Is Indicative of Future Streaming Partnerships and Consolidation
Consolidation has to happen and will happen across the streaming landscape.
The cost hurdles to reach breakeven as a streaming pure play are much higher than those of traditional linear broadcasting companies largely because the “one-to-one” random access streaming network configuration is inherently more expensive to build and operate as compared to the traditional “one-to-many” fixed access linear network configuration.
Further, many of the mid-sized and smaller streaming services lack reach. Their budgets are limited, therefore they simply can’t afford to go-to-market as aggressively as they would need to in order to attract and retain subscribers. Cutting distribution deals with larger partners such as Warner Brothers (WBD), Amazon and Apple enables smaller production houses / streaming services to share some of the financial risk in exchange for a revenue share or some other compensation.
A24 is an independent movie studio that has a reputation for making quality feature-length films that garner critical accolades while also capturing a decent-sized audience. The studio is very much in line with the HBO of decades past that was known for making critically acclaimed content that captured a wide audience, including TV shows such as The Wire and The Sopranos. The two companies have come together on a distribution deal whereby A24 content will stream exclusively on HBO. Perhaps this distribution deal will lead to an acquisition down the road.
I believe that Warner Brothers Discovery (WBD) will be a net acquirer over the next year or two assuming that the Fed’s Funds rate remains above 3%. At that level, many smaller content producers will struggle to survive. WBD was unsuccessful in its effort to acquire WWE (now TKO Group / Endeavor), earlier this year.
Ultimately I believe that WBD will be acquired, most likely by Amazon or Apple. I also believe that the greatest hurdle to getting large content acquisitions done is the Biden Administration’s FTC. Nobody wants to go through what Microsoft went through to acquire Activision. Sellers want certainty of closure, as do buyers. This goes for Disney as well. At least one prospective acquirer of Disney’s ABC network has stated publicly that Disney is hesitant to pull the trigger on a sale of ABC and other linear networks in part because the company is not sure that the FTC would allow the deal to close.
I believe that Disney will be sold before Bob Iger leaves the company.