M&E Connections

Study: 2018 to See More Digital Disruption, Evolving Pay TV Activity

This year expect to see more disruption to traditional media and entertainment distribution, accelerated mergers and acquisitions activity, and a shift in how ad dollars are spent, according to a new study from Bank of America-Merrill Lynch.

Digital disruption is continuing to change content monetization models, though while TV productions will continue to see big profits, programming costs are also expected to rise, according to the “Media & Entertainment 2018 Year Ahead – Taking Up Arms” report. And mergers and acquisitions among M&E firms may be the story of the year for 2018.

“With $117 [billion] in deals awaiting close, we believe 2018 will mark the beginning of M&E’s golden age of M&A as the industry further reshapes to address the above trends,” the report reads.

On the pay TV side, Bank of America-Merrill Lynch expects traditional operators to “improve the value proposition of the traditional pay TV bundle,” to help offset subscriber declines, and to better-improve content acquisitions to differentiate themselves among digital-first competitors.

“As consumers migrate toward cheaper streaming platforms, we anticipate traditional Pay TV bundle subscriptions will continue to track down (-3%) in 2018, leaving cable network affiliate fee
growth overly dependent upon rate increases,” the report reads.

The report notes that the combination of increased film and original TV offerings from subscription VOD players and the potential studio rollout of a premium VOD services as little as 17 days after a film’s theatrical debut, non-tentpole titles from studios could be negatively impacted, hurting both theatrical and home entertainment performance. However: “When considering that two major Hollywood studios are involved in pending M&A [Warner Bros. and Fox] we believe wide scale premium VOD deployment may be delayed until late 2018 or beyond,” the report reads.

The report also predicts that 2018 production levels will surpass 2017’s 487 scripted original productions among subscription VOD players, especially with Apple as yet to reveal its premium video strategy. “We also believe Hulu’s recent success with ‘The Handmaid’s Tale’ will also likely drive more margin friendly domestic licensing/commissioning activity,” the report reads. “Amazon Prime remains a wildcard, as its content strategy appears poised to shift given the pending rebuild of its management team.”