The corona deals

The pandemic will hurry the closure of brands and businesses that would have gone into gradual decline. Wait then for more deals to be announced in media and entertainment

Bear with me as I draw a rather morbid analogy. The coronavirus has a greater impact on older people with pre-existing conditions, say a heart or kidney problem. It does away with the gradual decline that a disease brings, hastening the inevitable, especially for older people with illnesses, say medical experts.

The economic impact of the pandemic unleashed by the virus is similar. Businesses that would have gone into gradual decline, transitioned into other businesses, done strategic tie-ups or mergers or simply sold out gracefully are now being shaked and rattled into lifeand-death decisions and deals.

Newspapers have shut editions, about half-a-dozen TV channels have gone off air, thousands of people have lost their jobs as the ~1.82 trillion Indian media and entertainment (M&E) business lurches from an economic slowdown, triggered by demonetisation, to a full-fledged recession brought on by the corona crisis.

As the misery unfolds, there will be more distressed firms wanting to offload stake or simply sell out. And it is the technology giants like Google, Microsoft, Facebook, Amazon, Apple or even Infosys, TCS or Wipro that have the money. Media and telecom firms either don’t have the scale or the profits to keep them afloat if revenues continue to be pummelled.

Last week came the news that the $162-billion Alphabet (Google’s parent) is eyeing a 5 per cent stake in Vodafone India. Meanwhile, the $71-billion Facebook Inc picked up almost 10 per cent stake in Reliance’s Jio Platforms for ~43,574 crore in April. You could argue that Jio’s stake sale is part of a planned debt restructuring. And that Google dabbles all over the media, technology and telecom space. Its attempt to pick a stake in financially strapped Vodafone is just an extension of that. That is partly true.

The other part is the stage at which M&E is globally and in India.

The internet and on-demand viewing have had a kaleidoscopic effect on the M&E business. Now, one thing is clear — telecom, technology and media firms are collapsing into one simple search for audiences. Google, Amazon, AT&T, Disney, Comcast, Apple and Netflix among others are acquiring companies and commissioning content from across the world in their search for scale.

This scale is defined not just as ownership of a massive platform, but by the ability to serve a maddeningly diverse yet global audience. It could be the French watching Sacred Games (Hindi, India) or the Turks watching Dark (German, Germany) among others. The idea is to aggregate as many diverse audience clusters, across platforms, technologies and geographies as possible — because that brings scale, market dominance and profits. Note this may be true of several other industries, but this column will talk of these changes only in the context of M&E.

This search is not defined by any technology. Some of the biggest dealmakers recently have huge, profitable, linear businesses. Disney controls three large OTTS (Hotstar, Disney+ and Hulu), one of the world’s biggest film studios and a profitable pay TV business. Comcast, the largest broadband provider in the US, recently bought BSKYB, a DTH operator.

India offers two things in this new ecosystem. One, a huge audience, whether on the internet (625 million), TV (836 million), newspapers (390 million) or other media. Two, storytellers. It is, other than Korea, one of the few markets with authentic local stories to tell and an industry that tells them well. And these stories can now travel to 200 countries, thanks to Amazon Prime Video and Netflix ( Delhi Crime, Sacred Games, Paatal Lok, The Family Man). Some were even nominated for the International Emmy Award. This storytelling ability is what the world’s largest platforms are tapping into.

But for all its size and creativity, India also happens to have a fragmented and under-monetised M&E market. The pandemic is expected to knock revenues down by anywhere between 20 and 40 per cent. Some newspaper that might have published for another decade might fold up, while channels that could have happily ridden on a successful network will get off air. Many single screens could shut down or sell out, production houses could get acquired. Ditto for broadcasters. There is talk of at least one major broadcast merger. And that one of India’s largest multiplex chains might be up for sale.

Reality may be more morbid than the analogy.