What kind of deals do entertainment and media giants need in the age of technology giants? It is a question that Hollywood management teams and Wall Street are constantly discussing and assessing.
Management consulting firm Bain & Co., in a new research report, shares this guidance: “Own the consumer, own the intellectual property (IP), or own nothing.” In other words to compete in “a world of tech mega-platforms,” players will need “more cross-sector M&A and deals for IP.”
The report comes from Bain partners Nicole Magoon, Matt Keith, and Alex Egan. “The creative industries have long stretched their tentacles into new places with the support of technology — for instance, art incorporated photography, music got recorded, and actors moved from stage to screen,” they write. “Over the past 15 years, however, tech has stretched its own tentacles into media — for instance, Netflix’s massive digital distributor grew a studio to supplement its library, and Amazon’s retail hub grew video content as a sweetener.”
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This push by big tech into media, entertainment, and gaming led traditional media companies to react in “distinctly different stages,” the experts highlight. “First, they turned to M&A to consolidate and build scale within their core business. It was a way for media companies to compete with their tech brethren. Now, they are adding another approach — they’re using scope deals to expand across sectors. It’s to the point at which more than half of all media industry M&A involves either a target or acquirer outside of the industry.”
That means that these companies are now converging to compete with giant tech players and buying “more evergreen IP” that can be used across platforms. “By owning these cross-sector assets and IP, they create fan communities and multimodal content — and they generate revenue not just from subscriptions, streaming ads, or theater tickets but also through other means, such as merchandise and special events,” the Bain report emphasizes.
The experts point to Disney as one example. “Disney, a media company with a rich history of expanding through both scale and scope deals, has … shifted more energy from scale to scope in recent years,” the Bain team argues. “While not a linear path, Disney moved from a majority of scale deals, such as Pixar in 2006 and 21st Century Fox in 2019, to an increasing emphasis on scope deals. In 2024, the iconic company added deals outside its core to its M&A strategy by investing in Epic Games, maker of the successful immersive game Fortnite.”
Another recent cross-sector deal they mention is Sony Pictures Entertainment’s purchase of the movie theater chain Alamo Drafthouse. “Alamo will be managed under a new division called Sony Pictures Experiences, expanding Sony’s presence into new parts of the media value chain,” the Bain report notes.
IP-based acquisitions abound, including in music, where the paper cites the likes of Sony Music buying half of Michael Jackson’s publishing and recorded music catalog, “banking on the enduring nature of his music in a digital future.”
Cross-sector dealmaking requires a different focus than other forms of M&A though. “For one thing, an acquirer is likely to be less familiar with the target’s industry. Also, the revenue synergies inherent in scope deals are harder to realize and underwrite than cost synergies,” the Bain partners offer. “To overcome both challenges, the most successful media acquirers will conduct more detailed diligence than usual, making use of data clean rooms and talking to the target’s customers to gain more confidence in the revenue benefits that they can derive from cross-selling, reducing churn, and increasing fan engagement on the platform.”
The Bain report also warns of “a higher risk of cultural differences, including differences in ways of working,” when media and entertainment companies move into new spaces via deals. That means they must strike a balance between “harmonizing these nonnegotiable cultural differences while also ensuring that they preserve the unique and valuable cultural assets from different companies.”
