Media Consolidation

The hottest product in tech is Bluesky, adding 1 million users a day since the election. CEO Jay Graber says the platform will never have ads, as ads are the road to “enshittification.” OK then. Ad-supported media, as a whole, is one of the least volatile businesses over the last century — accounting for 1.5% of GDP, and rarely straying from that number. Inside the sector, things are less tranquil (i.e., more chaotic). In an attention economy, money follows eyeballs. I believe we’ll see ads on Bluesky eventually, but for now, let’s talk about consolidation in the broader sector.    

Burmese Pythons  

Stories about Burmese pythons litter the local news in Florida. These snakes get big, really big. The serpents can grow to as much as 16 feet long and weigh hundreds of pounds. This presents a problem, as most owners are 5 foot 9 and soon discover their roommate situation is unworkable. Owners release the snakes into the Everglades, where they begin taking down alligators and deer. An alien species to the ecosystem of swamps, marshes, and mangrove forests, they’ve established themselves as the apex predator, and their population has exploded. The threat to Florida’s ecosystem is so great that mitigation efforts include employing full-time snake hunters and organizing state-sponsored hunting competitions. The winner of one competition earned $10,000 for nabbing 28 pythons — a drop in the bucket against a species that lays 30-plus eggs at a time and can reproduce asexually. After three decades, the U.S. Geological Survey concluded in 2023 that the python is winning. 

Unlike the classic apex predator, which evolves alongside its prey, a nonnative apex predator arrives with such disruptive force that instead of dominating an ecosystem they transform it. Legacy media looks like Florida 30 years after the arrival of the Burmese python. A nonnative apex predator (digital) is out-hunting and out-reproducing the previous apex predator (legacy media). 

Winner Take Most

Digitization lowers the barrier to entry, giving everyone access to everything. Initially, this looks like competition with extra protein, but over time it becomes consolidation on steroids, as digital ecosystems are winner-take-most/all based on who establishes leadership and access to the cheapest capital. Amazon registers 37% of e-commerce in the U.S., while its nine closest competitors (Walmart, Apple, Target, etc.) account for 23% combined. Nearly two-thirds of the world’s social media ads are sequestered to Meta. Since 2014, 90+% of internet searches are done on Google; the second-most-popular search engine, Microsoft’s Bing, commands less than 4% of the global search market. Three companies, Match Group, Bumble, and eHarmony control the entire digital dating marketplace. There is also consolidation on the customer end, where 10% of men get 80% to 90% of the dating opportunities. 

In my industry, podcasting, the concentration is extreme even by digital standards. Of the 600k podcasts that produce content each week, the top 10 capture half the revenue. Put another way, to build a business in podcasting that pays people well and retains talent with high opportunity cost(s), you likely need to be in the top 0.1% by listenership. As a member of UCLA’s crew team, I was 3.5x more likely to be an Olympian than a successful podcast host.

Consolidation

In the late 1990s a wave of internet startups introduced a nonnative apex predator called streaming into the television media ecosystem. Thirty years later, most of those startups are dead, but their species has transformed the ecosystem such that streamers are the hunters and legacy media the prey.

To paraphrase what Ernest Hemingway said about bankruptcy, legacy media consolidated gradually, then suddenly. Here’s the gradual part: Over the past four decades, we’ve gone from an ecosystem where the number of companies controlling 90% of American media has gone from 50 to 6. Deregulation, financialization, and lax antitrust enforcement incentivized consolidation, but the shift from analog to digital made it a necessity, with the legacy media companies bulking up to keep from being devoured by digital. The sudden part happened last month, when Comcast announced it would spin off its cable assets — USA, CNBC, MSNBC, and E!, along with digital properties such as Rotten Tomatoes and Fandango — into a holding company called SpinCo. 

Good Bank / Bad Bank

My first serious relationship in NYC was with a wonderful woman who suffered from bipolar disorder. We broke up for a simple reason: I did not know who I was going to wake up next to in the morning. When a company has a profitable but declining business (cable) and a growth business (streaming), investors don’t know who they’re living with. They don’t know how to value the asset, so they assign the multiple of its worst business to the entire company. The divestiture of assets in different life cycle stages provides more clarity to investors, and ultimately creates a smaller whole that’s greater than the sum of its parts.

The SpinCo cable assets generate about $7 billion per year in revenue. Meanwhile, Peacock, Comcast’s streaming service, reduced its losses from $565 million to $436 million (YoY). But more important for a growth asset, its revenue increased 82% (YoY) to $1.5 billion. I predicted SpinCo a year ago. I’ll make another prediction now: SpinCo will become a vehicle for acquiring other cable assets. 

Warner Bros. Discovery and Paramount are likely sellers, as both have profitable streaming units that are weighed down by legacy assets. When Max swung from a loss of $1.6 billion to a profit of $103 million (YoY), Warner Bros. Discovery saw its stock fall 12%. Paramount+ turned a $49 million profit in Q3, but Paramount’s market cap is down 19% this year. Disney, the only legacy player to see its stock increase after its streamer reached profitability, says it’s not selling its linear assets (ABC, FX, ESPN, etc.) as those networks are deeply integrated into Disney+. 

Interestingly, all three companies are betting on bundling strategies, i.e. consolidating cable content in one app, without the cable infrastructure. Netflix, the nonnative apex predator, says it’s strong enough to hunt solo. I think Bob Iger is either wrong or he’s playing poker and holding out for a better price. If Disney sold its cable assets for $1, I believe it would be worth more within a year, as it would offer a cleaner story re streaming, movies, and the parks vs. Bob apologizing every quarter for ABC and ESPN’s lackluster performance.

Distressed Assets

The second-best investment I ever made was in a Yellow Pages company. At the time, these assets were declining at 7% to 12% per year, but they were still throwing off a lot of cash flow. We acquired one Yellow Pages company after another, on this basic thesis: Together we can survive, even prosper; alone, we’re all dead. Our strategy was simple: cut costs faster than revenue declined by retaining the top 10% of sales people, closing headquarters, and laying off nearly everyone at HQ. That we were able to pick up these assets on the cheap meant that every year we increased cash flow. Coda: Ultimately, the company returned to growth as a customer relationship management firm.  

Distressed assets can be great businesses, as they can be bought on sale and typically don’t go away as quickly as people believe they will. The median age of an MTV viewer is 50 years old; the median age of an MSNBC viewer is 70 years old. Those aren’t attractive demos for advertisers, but those audiences are likely to continue tuning in for the rest of their lives. As long as ownership stops trying to inject Botox and filler into a senior to make it look young again, they can generate increasing cash flows with linear assets, by cutting costs faster than the rate of decline via consolidation.

Means of Production

In television, the platform has always been bigger than the talent. In podcasting, and the creator economy, it’s the converse. Net neutrality protects the little guy from getting muscled out on distribution, as the distribution is accessible and free to everyone. The means of production are relatively cheap — my podcasting kit costs around $1k, a decent TV studio can run $400k+. There is little sustainable enterprise value in a podcast company; what matters isn’t capex or infrastructure, it’s talent. That’s why a small number of individual podcasters are getting rich, but not a lot of podcast company shareholders. Podcasters command a greater share of revenue, and they’re orders of magnitude more efficient than TV studios, resulting in better pricing for advertisers.

Wealth Transfer 

A cable news anchor recently told me he expected his compensation to decrease 80% with his next contract. He isn’t Rachel Maddow, though her new contract at MSNBC reportedly will pay her $5 million less per year. Puck calls this “The Great TV News Comp Depression.” But it’s not just cable news. I recently had lunch with an Oscar-nominated movie star (flex) who told me he’d worked for scale, i.e. the guild minimum, on his last few films. On the scripted television side, where salaries historically increased with each new season, networks are cutting pay to keep shows afloat; CBS reportedly cut pay for the cast of Blue Bloods by 25%. Industrywide, actors have seen their median hourly wage decline by 56% since 2013. Television writers, who went on strike with zero leverage just as their employers were scaling back content budgets and shifting production overseas, are 1.5x more likely to work for the guild minimum than they were a decade ago. 

Netflix Python

An apex predator released into the wild has reproduced asexually, doesn’t need distribution partners, and is devouring the ecosystem. Since launching its original content business in 2012, Netflix’s market cap has increased 7,337%. This means the industry is booming for all involved, no? The dominant means of production for scripted television is Netflix, which has flexed this muscle to reshape the flows of value. Specifically, it has reduced production costs, while massively investing to create an explosion in the amount of content, transferring value from all parts of the ecosystem to the company’s shareholders and subscribers. If you live in L.A., you’ve likely given 4 stars to a former producer of a reality-TV series.  

There are 180,000 members of SAG-AFTRA, and last year 86% of them didn’t qualify for health insurance, as they made less than $26k. Constant reminders from CNBC re the market touching new highs masks a deeper issue: As in the future described by William Gibson, the future/prosperity of media is here, just not evenly distributed. AI, Netflix, and the Big Tech platforms are eating everything, and they have few, if any, predators. The deer and alligators (industry workers) have no means of defense, because they’ve never encountered this species/technology before. The result is an atmosphere of anxiety and fear. These emotions are common sense.  

Life is so rich,

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