Media and telecommunications deals insights: 2021 outlook

The Media & telecom sector adapts to changing consumer patterns and disruption

Over the past 12 months, the Media & Telecommunications sector experienced 612 announced deals, with a value of $99 billion. Broadly speaking, the sector was one of the more resilient ones during the pandemic, with deal activity remaining largely flat when compared to 2019. As we reflect back on the deal drivers of the past year, we’ll take a look at emerging trends that will continue to shape M&A in the sector through the next year and beyond. These trends include changing consumer behaviors, accelerating disruption toward a digital future and divestitures of non-core assets.

PwC's Deals Sector Leader John Potter discusses the trends driving deals and outlook for 2021. Explore national deals trends

Sector deals outlook

Despite unprecedented challenges, deal activity in the Media & Telecommunications sector continued at nearly the same pace as 2019, with 612 deals in the past 12 months marking just a 4% decline, while announced deal value increased by 8%. Following a strong start to the year, deal activity came to a virtual standstill in March 2020 before gradually increasing to a peak over the summer and early fall.

COVID-19 forced companies to be more introspective and reconsider their core strategies. For larger conglomerates, that meant forging ahead with their digital strategies — whether that includes streaming platforms, data-driven advertising or 5G networks — and disposing of non-core assets to generate cash. For small and midsize companies, that will likely lead to consolidation across the industry in order to scale up, cut costs and compete effectively. Meanwhile, consumers have quickly adapted to the disruption COVID-19 has brought, with digital media consumption experiencing significant growth in the absence of live events.

Take for example Verizon’s recently announced majority sale of the Huffington Post to BuzzFeed. For Verizon, this sale continues its divestment from the media sector, while freeing up additional cash to pursue its 5G strategy. Plus, the terms of the sale reportedly allow Verizon to share in earnings for syndicated content across the sites. For BuzzFeed, the combined company now has more leverage to compete for advertising revenue, while consolidating back-office functions to reduce operating costs. Similarly, ViacomCBS’ recently announced sale of publisher Simon & Schuster to Bertelsmann for a reported $2.2 billion follows ViacomCBS’ strategic review of its assets and provides capital to grow its streaming offering.

Following a trend set in motion in the past two years, we’ve also seen private equity investments in the sector reach a new peak this year, with PE investments accounting for 34% of deal volumes — up from 28% in the prior year.

Without speculating on specific assets that may be up for sale, we point to how M&A activity reshaped the sector in the wake of the 2008 financial crisis, and we predict similar realignment here in the coming years.

Sub-sector outlook

Media

For most entertainment giants that are refocusing their strategies after an era of massive consolidation, the core focus has shifted toward OTT streaming services as the sector moves from an advertising-reliant revenue model toward a consumer model. In the past year or so, we’ve seen Disney+, AppleTV+, HBO Max, Peacock and Quibi join a long list of existing streaming services — with varying degrees of success. To grow these platforms, their parent companies will need to continue to acquire or develop a diverse slate of content, particularly as they expand internationally and require more localized content to compete with existing players. In the near term, this could prove difficult, as TV and film production continues to be affected by restrictions that lead to longer, more costly production timeframes.

But the shift toward OTT was not the only disrupting trend to be accelerated by COVID-19. Cloud and app-based services, digital publishers, podcasting and video game publishers have all become more attractive acquisition targets as advertising budgets became focused on digital mediums, and consumers turned to at-home entertainment. Meanwhile, sub-sectors reliant on in-person audiences or production and traditional advertising will take longer to recover, and they could become takeover targets as the need for funding grows.

Telecom

Streaming video, music and gaming are the future of the media sector, but the industry will rely on the rollout of 5G to reach its potential growth — not to mention 5G’s impact on other sectors.

While M&A in the media sector dipped this past spring as lockdown measures were announced, telecom deals continued apace, with long-term 5G rollout goals in mind. As has been the case throughout the past two years, demand for 5G capabilities spanning fiber, cell towers, equipment and technologies will continue to drive deal volumes for the telecom sector.

Of course no sector can avoid the impact of COVID-19, and while some have struggled, telecom companies have found opportunities. As we settled into a world of virtual meetings, Verizon acquired the cloud-based teleconferencing service BlueJeans, and Facebook and Google invested billions in India’s Jio platforms. Also, as individuals sought lower-cost alternatives to their expensive mobile plans, Verizon announced plans to move into the resurgent prepaid plan segment with its proposed $6.9 billion acquisition of Tracfone.

“While the Media & Telecom sector was able to pivot to a virtual marketplace during COVID with relative ease, there is no doubt that people miss the personal experiences generated through live events, and we anticipate a full recovery post-COVID. We wouldn’t be surprised to see legislation, regulations and depressed valuations assist in this recovery.”

Bart Spiegel, US Technology, Media & Telecommunications Deals Partner

Key deal drivers

New ways of being

Consumer behaviors were already changing before COVID-19, which generated a wave of digital disruption, perhaps years ahead of schedule. Faced with this new reality, consumers have accelerated the adoption of streaming content — whether television, music, podcasts, video games, home delivery and wellness apps, or virtual collaboration apps like Zoom, Slack and Houseparty. Though the rapid adoption of these platforms was thrust upon us by circumstances, they’ll remain popular as consumers have gotten used to their convenience and have invested in hardware like Nintendo Switch or Peloton bikes. Meanwhile, the products themselves have improved, with streaming services adding more content and infrastructure to keep viewers engaged, along with delivery apps improving their fulfillment and delivery capabilities. But just as we’ve seen consolidation in the food-delivery app industry this past summer, we may see similar trends emerge in various stay-at-home entertainment and collaboration platforms as the major players seek to remain competitive and grow at scale.

With many households operating on more limited budgets, live events and sports paused, and an abundance of streaming services available, cord-cutting hit record highs as consumers opted for customized bundles of streaming services instead. Some cord-cutting trends are bound to reverse, as currently dormant hotels and bars return to business and require entertainment options for guests. But will sports be enough to draw households back to cable packages? And will streaming services start to compete with broadcasters for coveted rights to air live sports?

One consequence of new consumer behavior patterns is the shortening of theatrical release windows. Universal has led the way in negotiating reductions in theater exclusivity of new films from 90 days to as little as 17 days for some films before being able to exploit the same content through premium video on demand (VOD). Meanwhile, studios like Disney and Warner Media have made the bold choice to release films with blockbuster expectations directly on their streaming platforms, with Wonder Woman 1984 marking the first tentpole film released simultaneously in theaters and over the top (OTT). And with federal courts recently greenlighting the Justice Department’s termination of the Paramount Decrees — which have prevented studio ownership of theaters since the 1940s — there may soon be closer ties between studios and exhibitors through M&A.

Shifting industry paths

As discussed in this year’s Global Entertainment & Media Outlook 2020-2024, we expect the sector’s recovery not to be ‘U’ or ‘V’ shaped, but rather ‘K’ shaped — with a bifurcated recovery trajectory that benefits more digitized sub-sectors. Some sub-sectors have clearly benefited from the new normal, with digital media consumption on the rise at the expense of more analog broadcasting, cable, print and theaters.

Live events — including the theater, film, concerts, sports and trade shows — may have been hit the hardest in the media sector. With vaccines on the horizon, we expect these sectors to begin their recoveries toward the second half of 2021, but it remains to be seen whether consumer behaviors have shifted permanently toward in-home, on-demand entertainment experiences. Will consumers flock back to theaters and arenas after more than a year, or will they continue to enjoy these experiences from the comfort of their own homes?

The advertising sector could take the longest time to fully recover, as its fate is largely tied to the overall economy. While the presidential election offset some of the advertising revenue lost from COVID-19, the leisure and travel industries will take longer to return to pre-pandemic levels of advertising spend. Looming beyond the COVID recovery, the advertising industry faces a new set of challenges, as Google Chrome sets to sunset third-party cookies by 2022, likely spurring innovation in ad targeting.

Some nascent industries could see exponential growth as the sector recovers during the next few years. Following the convergence of video games, virtual and augmented reality, and cloud technologies into the metaverse over the past few years, companies have begun to experiment with delivering different experiences through platforms like Fortnite. This technology has been used to deliver shared video game experiences, host virtual concerts and premieres, and even change the way CGI-heavy films and TV shows have been shot. Companies pioneering this technology could be interesting takeover targets for both media conglomerates seeking to vertically integrate these technologies, and larger tech companies looking to grow their capabilities.

Another industry that will benefit during the recovery is online gambling, which is likely to be fueled by both consumer demand and the need for tax revenue as states struggle with their budgets. Not only will existing platforms themselves become more valuable companies, but brick-and-mortar casinos looking to pivot online will become more interesting investment targets, as demonstrated by IAC’s investment in MGM this past summer. Just as the boom in popularity of podcasts led to a wave of acquisitions in both content production companies and niche advertising, hosting and distribution firms, we can expect a downstream effect for online gambling, digital banking intermediaries, digital identity software and other support industries to become interesting acquisition targets.

Contact us

Bart Spiegel

Deals Partner, PwC US

Colin Wittmer

Deals Leader, PwC US

Marc Suidan

Technology, Media and Telecommunications Deals Leader, PwC US

Ian Same

Principal, PwC US

Edward Calderone

Deals Senior Manager, PwC US

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Media and telecommunications deals insights: 2021 outlook

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The Media & telecom sector adapts to changing consumer patterns and disruption

Sector deals outlook