Exclusives

Artificial intelligence (AI) and other emerging technologies will likely play a role in deals made in the media and telecom sector in 2018, according to PwC.

That’s one of the key themes that PwC believes “will not only drive deal volume, but will likely continue to shape the Media and Telecom landscape,” it said in a new PwC report released Jan. 25. The report looked at deals made in 2017 and provided the company’s forecast for 2018, noting that megadeals like the one Disney made to acquire a large percentage of 21st Century Fox’s film and TV assets are “propelling an industry shift” around mergers and acquisitions (M&As).

“In recent years, investors have poured capital into technologies that have yet to go mainstream, but not all have advanced much beyond backing from venture capitalists,” PwC said in the report. But, since 2012, there’s been more investment in AI than any other emerging technology, including Internet of Things (IoT), augmented reality (AR) and 3D printing, according to a PwC analysis of CB Insights data.

Although the media and telecom industry is “facing a level of uncertainty concerning the speed of change in areas such as AI, we expect companies that use the technology to innovate will likely garner interest from acquirers,” PwC said. For example, it said, “we could see interest in internet advertisers that are beginning to harness AI to track ads across platforms and create personalized targeting.”

Another major trend cited by PwC is that companies are continuing to focus efforts on building businesses and brands that are “anchored around active communities of users.” It predicted that, “ultimately, tomorrow’s leading companies will recognize that growth depends on getting much closer to the consumer allowing them to seamlessly introduce new product offerings and technologies.” Although “content and distribution are clearly important,” it said, “they are not enough” and suggested companies focus on creating a “compelling user experience and have an ability to pivot or reinvent themselves” as the media and telecom environment “evolves.”

Internet video, internet ads, gaming and access are also driving growth, PwC said. Although some traditional media sub-sectors are “plateauing, growth is expected in internet-driven segments including video streaming underpinned by improving broadband coverage and a wide range” of over-the-top (OTT) launches globally, along with Internet advertising, it said. Gaming’s growth is because of the large global audience accessing increasingly capable devices and “low barriers to entry in terms of game costs,” it said.

Significant investments in telecom network improvements — including fiber and 5G upgrades or other networking technologies — are also “critical to preparing for more dynamic, competitive environments,” PwC said. Network enhancements could “position companies to take back the technological advantage from OTT providers,” it said.

PwC also expects megadeals to continue to make headlines in 2018, it said, noting large media and telecom companies continue to use them to scale their businesses, gain access to content, improve technical and operating efficiencies, or as a means to transform in the new digital age.

Deal volumes grew 29% in 2017 from a year earlier, reaching 876 deals, but deal values decreased 31% in the same timeframe, PwC said. There were 18 megadeals (deals over $1 billion) in 2017, and they accounted for about 63% of announced deal value, it said. Topping the “megadeal pack,” of course, was the Disney deal for Fox assets, PwC said.

Advertising and marketing “leads the charge” by sub-sector, PwC said, noting such deal volume grew 40% from 2016. User experience and data-driven ad technology are expected to “remain at the forefront” in 2018, PwC said, predicting “momentum in this sector [will] likely continue not only from the traditional media players but also from across industry lines.”

Last year was, meanwhile, another big one for film/content, from both a deal value ($75 billion) and volume (67 deals vs. 50 in 2016) perspective, PwC said. Volumes were steady throughout 2017 and were “driven in part by consolidation in the theater operator segment and acquisitions of smaller indie production houses,” it said.

Although 2017 communications deal values fell shy of the prior year, deal volumes grew by nearly 70%, PwC said. Verizon’s purchase of Yahoo was the “headline grabber” of 2017 in that sub-sector, but volumes were “driven by consolidation and infrastructure-related” M&As, PwC said. The “key” communication players in 2018 “will likely continue to shed unnecessary assets and to improve operating efficiencies and expand upon their capabilities/customer offerings,” it predicted.

In light of the “robust deal market” in 2017, PwC expects 2018 will be “another banner year as companies look to expand on their capabilities and portfolio,” it said. Also of interest is the pending outcome of the proposed AT&T/Time Warner $85 billion deal that hit a snag in 2017, PwC noted.