Are mega-mergers of media and telecoms companies misled?

As the seismic M&A contest in the United States between Comcast and Disney creeps closer to its conclusion, and another one involving Sky in the United Kingdom rumbles on, many analysts and investors are again focusing on the intersection, or integration, of major media and telecom assets on both sides of the Atlantic.

AT&T’s successful purchase of Time Warner was the most notable recent example of so-called “vertical integration”, the combination of a distribution behemoth with a content Goliath. And though the US Department of Justice promised a few weeks ago to appeal a judicial ruling earlier this year that permitted the $85 billion (Dh312.2bn) mega-merger to proceed, a preponderance of legal experts say the judge’s earlier approval will likely stand.

Last month, shareholders at Disney and 21st Century Fox approved Disney’s $71.3bn acquisition of Fox’s international entertainment assets. A little earlier Comcast chief executive Brian Roberts had conceded the price tag for those media properties was too high for him to continue with his rival bid, and rather graciously called off his firm’s pursuit. (Disclosure: CNBC, my employer, is a wholly owned subsidiary of Comcast). The Murdoch family had reportedly preferred the stock element of Disney’s offer, with the added benefit that US authorities had already granted conditional anti-trust approval for the deal.

Disney has a current market capitalisation of close to $168bn, and from the outset the company was clear about its rationale for splashing out for Fox’s movie and TV production house, its US cable channels and indeed its Asian content powerhouse Star India. The ultimate prize is competitive scale and superior content for the coming war over internet streaming.

And the 39 per cent of Sky that Fox owns could also prove useful to Disney, since the UK-based firm possesses some enviable content including much sought-after rights to screen England’s Premier League football.

Sky would also provide some cutting-edge distribution technology that will improve the platform offering of whoever ends up as its successful suitor; and represents a diversification opportunity outside the US with sizeable subscriber bases in Germany and Italy. Disney/Fox has less than weeks to launch another bid for Sky that will outstrip’s Comcast’s latest offer. Otherwise Sky shareholders may sell to Comcast.

Last month I heard a contrarian position on the benefits of such vertical integration (anyone remember the ill-fated AOL-Time Warner?) from Amos Genish, the chief executive of Telecom Italia. His company has partnered with, and competed against, Sky several times in the past decade. “I don’t think that the payback is as clear as people are claiming,” he told me at his Rome headquarters.

He insisted instead that a telecoms giant (Telecom Italia is a top 10 company in one of the world’s top 10 economies) should focus on what it knows best, distribution through its networks, but also take “calculated, careful steps” to pick and choose the best content for its customer base.

That selection process is as crucial as ever for media majors – like Disney – that make billion-dollar bets on film franchises and TV shows. As the company prepares to roll out its own streaming service next year, and perhaps to take majority control of Hulu once the Fox acquisition closes, it is gearing up to face ever tougher competition from Amazon and Netflix.

I appreciate that this fact is far from a fresh insight. But one analyst I spoke to recently highlighted an intriguing possibility. He talked about a future inflection point of peak “eyeball hours” – the greatest number of hours in a day that the average person can physically find time to watch content on a screen, multiplied by the total population worldwide with access to such screens.

Once we reach that moment, he explained, every single content provider and distributor would be caught in a death match for survival, in a marketplace that will no longer continue to expand in step with technological innovation and internet penetration. It is conceivable that one day everyone on Earth could have access to an affordable viewing device, fast mobile internet and a reliable power source.

Then in the absence of growing frontier markets – content providers and distributors would be forced to defend their margins as they fight for slices of a global pie that is no longer getting bigger. Some corporate leaders clearly think it’s better to begin with a big slice.

It is conceivable that one day everyone on Earth could have access to an affordable viewing device, fast mobile internet