KEY TAKEAWAYS
  • User-created content has revolutionized how we create and view content, but control and monetization of that content remains centralized in the hands of a very few platforms.
  • Total global media deal volumes were slightly down to $19.6B compared to to the $20.23B levels registered in 2016.
  • National internet providers continue to consolidate control of the broadband market via mergers, further reducing consumers’ options, while state governments move to block city-built public broadband.
  • Trust in social media platforms and search providers like Facebook and Google is at an all-time low, and efforts to combat fake news and other divisive online content will likely hurt these platforms’ profit margins for years to come.
  • Ad-driven media is “broken” with large and small media outlets resorting to paywalls and focusing on meeting readers’ needs in order to drive revenue.
  • Programmatic ad delivery holds the promise of resurrecting ad revenue models by creating a more synergistic relationship between advertisers and internet users.
  • Part of Our Coverage on Decentralization in Media

Thanks to powerful user-created content platforms like Facebook, Twitter, and YouTube, anyone can be a content creator and distributor. These platforms have centralized immense power by controlling and monetizing user-created content, reaping billions of dollars in ad revenue and shifting the outcomes of national elections across the U.S. and Eastern Europe.

Platforms like Facebook decide what we see and don’t see at a granular level, choosing when to show us the content our own social communities and family members are creating. So, while we are less reliant on major studios, networks, and pipelines to distribute and consume content, the power of media has not decentralized; it has shifted.

Decentralization can be defined as any process that removes a major intermediary, but as we have said before, it can’t just move control from one centralized party to another, which is pretty much the story of media on the web.

The Flow of Capital
Based on numbers compiled by White & Case, global private equity investments in the media sector continued to trend lower in 2017. The total global deal volumes were slightly down to $19.6B compared to to the $20.23B levels registered in 2016. However, the number of deals were up to 142 in 2017 relative to the 124 disclosed deals in 2016. PE investment in media rebounded in 2017 in both North America and the EU. In North America, investments were up nearly 60 percent and EU investments more than doubled during the same period. Asian PE investments declined sharply in 2017 to $3.98B from the historically high level of $11.08B reached in 2016.

The dramatic drop off in PE investment in the Asian media sector is particularly striking given that 2017 was a banner year for PE deals in the Asia-Pacific region. Asian-Pacific PE deal volume breached all-time highs of $159B in 2017, an astounding 41 percent increase over the levels in 2016. So what is the explanation for the decline in PE investments in the Asian media market? Largely, it’s the fact that 2016 was a fairly anomalous year in the Asian PE market. In 2016, 134 deals were struck in the media and entertainment industry in Asia relative to the 42 and 23 deals reported in 2014 and 2015 respectively.

Currently, the big drivers for investment in the media sector are digital data-driven advertising and marketing, digital content, and OTT distribution and broadcasting.

Disney’s $71.3B deal to acquire major parts of 21st Century Fox would also increase Disney’s stake in Hulu to 60 percent, which is notable at a time when Disney has announced plans to start its own streaming service in 2019. If Disney can convince Comcast to sell its holdings in Hulu, Disney would be able to launch its Disney-branded service into Hulu’s existing customer base.

21st Century Fox and Comcast Corp. are currently in a bidding war over leading U.K. pay TV provider Sky Plc. Bidding has already reached $31B.

LiquidHub, a Philadelphia-based data analytics, market research, and enterprise architecture firm was acquired by Capgemini, a Paris-based professional services company, for $500M.

Apple bought London-based music and image recognition service Shazam for around $400M. Shazam had also been in talks with Snapchat and Spotify.

Broadband Delivery
Broadband delivery options for consumers are decreasing. Along with AT&T’s pending $85 billion acquisition of Time Warner, a wave of media and telecom mergers is expected, increasing the heft of broadband providers desperate to counter the growing market dominance of content providers like Amazon and Netflix.

Additionally, in a bid to consolidate their control of broadband access and intent on blocking municipalities from deploying publicly owned broadband networks, large telecom corporations are pouring millions into lobbying efforts at the state level. As of this year, there are 20 states that either outlaw or create complex regulatory roadblocks against municipal broadband deployment.

Broadbandnow.com reports, “In spite of these corporate efforts, 108 communities throughout the USA currently offer citywide access to publicly-owned fiber Internet, and 24 states feature at least one citywide FTTH municipal broadband networks. Those numbers have only grown in the wake of the FCC’s removal of Net Neutrality.”

The Collapse of Trust
If public opinion of telecom companies is poor, public opinion of search engines and social media platforms is a disaster. In its 2018 Trust Barometer Global Report, Edelman found that average trust in search engines and media platforms decreased in 21 of 28 countries, with the largest drop (11 percent decline) coming in the United States. This should scare the Facebooks of the world.

While an avalanche of false and divisive messaging flowed across their platforms, apps harvested the personal data of millions, leading users to reduce their use or leave the platforms altogether. And advertisers are threatening to follow.

The Big Stick: Ad Revenue
In a February 2018 speech to the annual Interactive Advertising Bureau conference in Palm Desert, California, Keith Weed, chief marketing officer at Unilever, put Facebook, Google, and others on notice. “As one of the largest advertisers in the world, we cannot have an environment where our consumers don’t trust what they see online.”

“Fake news, racism, sexism, terrorists spreading messages of hate, toxic content directed at children — parts of the internet we have ended up with is a million miles from where we thought it would take us. It is in the digital media industry’s interest to listen and act on this. Before viewers stop viewing, advertisers stop advertising and publishers stop publishing,” he said in his speech.

Unilever is the second largest advertiser in the world.

The Price of Responsibility
Along with the profitability and influence that comes with centralized power, platforms like Facebook are beginning to understand the responsibility they have for managing the content they distribute. Unlike traditional broadcast media, the volume of questionable and divisive content moving across the social media networks daily raises issues of scale requiring the deployment of AI and machine learning to stem to tide.

For now, Facebook is incurring huge payroll costs to fight back. For example, in advance of the 2018 elections, it hired thousands of moderators. Look for huge investments from Facebook to manage fake news for the foreseeable future. The scale of this effort is expected to impact profits.

Fake news has undermined trust in the media across traditional and digital brands, resulting in a dramatic loss of trust across the board. As media credibility falters, individuals who have built a human element of empathy and trust among audiences are gaining influence. Individual brands enjoy high degrees of loyalty among viewers, which decentralizes the power of their networks in the process.

Subscription-Based Media
In January of this year, Ev Williams, founder and CEO of Medium, declaredad-driven media on the internet “broken.” He let go of one-third of his staff and pivoted Medium to a subscription-based model, the long-term viability of which has yet to be determined.

Ad-based digital media makes no distinction between deeply researched long form articles and 500-word celebrity content strictly designed to drive clicks. Neither type of content earns a different rate based on its cost of production. Furthermore, sensationalistic fake news or celebrity-based content drives more engagement. As such, display ads have pivoted toward readers’ core interests, and the internet has followed.

New programmatic ad delivery technology might change this. Megan Hannay of MarketingLand writes, “Imagine ads that predicted your wants and needs to the point that they were mostly useful, instead of pretty much always annoying.”

The end result would be a more synergistic relationship between advertisers and internet users, reducing the use of ad blockers and making ads more of a collaborative partnership experience for users. But for the time being, subscription-based platforms from The New York Times to Medium are focused on satisfying subscribers instead of advertisers.

Content is King
What we’re seeing is massive vertical integrations in media. For example, William Morris/Endeavor has now created a production division. Entities like WME own talent, rights to content, production processes, and also, potentially, distribution pipelines. What does this level of media centralization mean for the industry and for consumers? In an age of millennials who are skeptical of big conglomerates, will consumers choose more boutique offerings and avoid these large vertically integrated giants? After all, in the world of consumer-created content, everyone is considered talent and thus everyone has a story to tell that can draw an audience.

Conclusion
Trust is at an all-time low. How well major user-generated platforms like Facebook and Google make the changes that advertisers are demanding will be reflected in the ad revenues they report in coming quarters.

Big media conglomerates like Comcast and Time Warner are merging and seeking to counter the growing power of Netflix and Amazon. As these huge centralized platforms pivot toward the threats facing their ad revenue streams, the opportunities for more small relationally constructive platforms are there.

But on the whole, media remains in the hands of centralized players and there is little evidence this will change in the near term.

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