Small Media Companies Seen Merging in `Skinny Bundle' World

  • Liberty Media to be `very active' on acquisitions in 2016: BI
  • ESPN may offer a streaming channel a la carte, analyst says

In the media world, 2016 could be the year of the little guy.

Small media companies like AMC Networks Inc. and Scripps Networks Interactive Inc. may look to consolidate with rivals to gain negotiating leverage with distributors like Charter Communications Inc. and AT&T Inc., which are getting bigger through their own mergers, according to a forecast from Bloomberg Intelligence analyst Paul Sweeney. And as consumers opt for “skinny bundles” of fewer channels, these smaller companies will face pressure to merge if their less-popular networks aren’t included, he said.

“These small companies may try to bulk up to make sure they have a seat at the table as the seats get fewer and fewer in a cord-cutting world,” Sweeney said Wednesday. “There’s more evidence out there that some channels really run the risk of losing some distribution.”

So-called cord cutters, who quit paying for pay-TV packages of hundreds of channels and favor online streaming services like Netflix Inc., are undermining a business model that has sustained the media industry for decades. While cable and satellite-TV companies will continue to lose subscribers, they are responding to the threat by offering cheaper, skinnier bundles of channels. And the smaller programmers don’t want to be left behind.

Liberty, ESPN

Liberty Media Corp. will be “very active” on acquisitions in 2016, Sweeney said of the company controlled by billionaire John Malone. Last month Liberty created separate stocks for assets like satellite-radio provider Sirius XM Holdings Inc. -- moves that were designed to “give them more flexibility to buy and sell their assets,” Sweeney said.

Next year could also be the year that ESPN unveils a Web-only streaming channel, he said. Walt Disney Co.’s sports network has lost 7 million subscribers in the past two years as consumers drop traditional pay-TV packages for cheaper online options.

While several media companies including CBS Corp. and Time Warner Inc.’s HBO have introduced new standalone online streaming channels to attract people who don’t pay for cable, ESPN hasn’t so far. If ESPN sells its programming a la carte, it likely won’t make available its most popular content -- like professional football -- at first, Sweeney said.

“We will see a direct-to-consumer offering but it’s going to look how ESPN looked 20 years ago,” Sweeney said. “We’ll see select sports. Maybe a little bit of basketball but not the full monty of ESPN’s offerings.”

As TV networks struggle with declining subscribers and ratings, they will boost spending on original programming to attract more viewers, Sweeney said. Such expensive investments in scripted TV shows could shrink short-term profits, he said.

Netflix Strategy

In addition, media companies may shift their strategy next year with Netflix Inc., which has taken viewers away from traditional pay-TV distributors, he said. For instance, in 2016 TV networks could start demanding much higher prices for licensing their content to the streaming service or a percentage of Netflix’s subscriber fees, Sweeney said.

“You’ll see the media companies get smarter about how they structure these deals,” Sweeney said. “They want more value for their content.”

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