The next stop on Silicon Valley's path to disruption could happen on Hollywood's turf.
Tech giants have eagerly capitalized on consumers' willingness to cut the cord, much to the chagrin of traditional media firms. Facebook Inc. (FB) , Alphabet Inc. (GOOGL) , Apple Inc. (AAPL) and Amazon.com Inc. (AMZN) have all planted stakes in the ground around content distribution and production, by either launching or licensing original shows.
The competition could get even more serious in the near future, however, as tech juggernauts consider acquiring Hollywood studios to cement their position in the rapidly evolving media landscape, according to experts. Some players, such as Apple, already have approached several studios about potential deals, while many have positioned dedicated staff inside Hollywood to get closer to the action.
"Over time, and after investing billions of dollars, we believe [tech giants] will buy the studios and run them independently with a handful of executives translating Hollywood jargon into Silicon Valley-speak because, in the end, content and distribution are complementary networks and are worth more together than apart," Needham & Co. LLC analyst Laura Martin said.
Internet companies have significant leverage over traditional media companies when it comes to online video. Facebook and Google's YouTube already have access to vast swaths of user-generated video content and have no issues with viewership, as huge chunks of the population are locked into their platforms. Buying a film studio would quickly give them content libraries at scale, allowing them to rival Netflix Inc. (NFLX) as well as other direct-to-consumer offerings.
"The internet represents global distribution," Martin added.
To be sure, stalwarts in the TV and film industries aren't standing still. Walt Disney Co.'s (DIS) blockbuster $52.4 billion deal to acquire most of Twenty-First Century Fox Inc. (FOXA) is largely viewed as an effort to bolster its soon-to-launch direct-to-consumer offering. Additionally, the planned $85.4 billion merger between AT&T Inc. (T) and Time Warner Inc. (TWX) will give the media giants a leg up in online content.
Hollywood has traditionally thought of tech companies as partners, but many TV and movie studios are quickly realizing that they might actually be competitors.
"Old Hollywood seems to be going in the direction of tech, but it has a tricky relationship," said Jonathan Hadad, tech industry analyst at IBISWorld. "It has become increasingly clear that tech is more competitor than partner, given the billions of dollars that they are spending on content."
Aside from their visible and growing original content budgets, many tech companies' efforts in Hollywood have only existed in the shadows so far.
"Apple wanted to buy a studio but basically the prices are high and the physical location sites are expensive," said Ross Gerber, CEO of Gerber Kawasaki Wealth & Investment Management, which owns shares of Facebook, Twitter Inc. (TWTR) , Amazon and other tech giants. "Apple's strategy right now is really to simply make shows and find a formula that people like. We've been told that they're putting a lot of money into this."
If Apple is successful at making shows, they may decide to launch a full-on streaming service to compete directly with Netflix, according to Gerber. The company is already in the process of building a pipeline for original content and has deployed a traditional strategy to do that, he added. In effect, Apple may have several "alias companies" in Los Angeles that are shopping around for original content projects, a strategy it has used in the past to keep other projects secret, like the iPad in 2010.
"They can't operate as Apple TV, so they've got a lot of these separately named companies operating in LA," Gerber added.
Tech giants that are already producing original content may be eyeing an acquisition of a film or TV studio to have a more complete slate of originals and aggregated content, said Barry Enderwick, a former director of global marketing and subscriber acquisition at Netflix. That mirrors Disney's strategy with Fox, in that the deal gives the House of Mouse access to Fox's vast content library and licensing deals.
"Companies that aren't really deep into originals yet, like Google or Facebook, might try to acquire one of the studios for their production capabilities but would also have the added bonus of a back catalog," Enderwick said.
Studios like Lions Gate Entertainment Corp. (LGF.A) or distressed outfit Weinstein Co. potentially could be targets, Gerber said. (Weinstein is said to be close to agreeing to a sale, the Los Angeles Times reported Tuesday, Jan. 9.) Smaller indie production houses such as Annapurna Pictures, A24 or Magnolia Pictures also could be attractive, though Gerber noted that many have existing, long-standing deals with film distributors. Gerber also suggested that Netflix consider acquiring struggling Imax Corp. (IMAX) , as it could allow the streaming giant to "capture and own the theater."
Buying a studio wouldn't guarantee that Facebook, Google or Apple's original content is a game-changing success, Enderwick added.
"High-quality originals are now the table stakes which have the added benefit of unfettered global streaming rights," Enderwick explained. "Even if a company bought one studio, they would only gain access to that one catalog."
Ultimately, it's likely that tech giants have some kind of renewed appetite surrounding M&A now that the Trump administration has passed new policies that make it cheaper to bring offshore cash back to the States. Whether Facebook, Google, Apple or Amazon decide to funnel their cash hoards toward buying a studio remains to be seen.
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