Exclusive movies and TV shows might entice Amazon or Apple or Facebook or Alphabet.
The big contest between tech giants Amazon, Alphabet, Apple and Facebook is getting you to use only use their product; really a fool’s ambition.
So short of having the better, cooler tech, the best way to keep people coming back (or locked in) is to offer exclusive things the other guys don’t have: Namely, media. So owning a content machine like Sony Pictures Entertainment — and its movies and TV shows — could help a tech company set itself apart.
Apple, Facebook, Amazon and Alphabet are already doing a pretty good job keeping people glued to their services. And as much as they’d like to create a walled garden, they know they can’t do that entirely. But owning a content producer like Sony potentially makes that easier.
Why Sony Pictures? Sony’s entertainment division became a distinct acquisition target last week after chairman and CEO Michael Lynton announced he’ll be stepping down in February and will become chairman of Snap Inc., just ahead of its IPO this year.
Calls for a sale aren’t new. Activist investor Dan Loeb pushed for one a few years ago, and speculation renewed in 2014 after Sony suffered one of the worst hacks in corporate history.
Sony Pictures is still profitable, but the real prize is its TV arm, which is one of the biggest producers of original shows like “The Blacklist,” which airs on NBC. It also owns distribution rights to longstanding hits like “Seinfeld,” which will look for a new home after it finishes its run on Hulu in 2020.
The point is, Sony owns and distributes a lot of original content. Having that in the arsenal could be more important as video has become a kernel tactic among internet companies to set themselves apart from the next guy.
That’s why Amazon produces original movies and shows for its Prime subscribers, why YouTube started a subscription music service (with plans this year to release a TV streaming service), why Facebook is talking to TV studios about licensing its own shows and why Apple wants to create its own movies and TV shows.
Don’t discount the pride (or ego) that comes from being the guy who pays for award-winning movies and TV shows. Few missed Amazon CEO Jeff Bezos grinning at a front-row table at the Golden Globes with Matt Damon.
There are big caveats here. Philosophically, tech companies — especially Facebook and Apple — tend to treat content, whether user-generated or licensed, as a marketing function.
Apple’s latest look at producing original video, for example, is devised to make Apple Music look different from Spotify. Both services already significantly overlap, offering almost all the same artists. So there’s little reason anyone, even audiophiles, would pay for both — unlike online video, where it’s conceivable a Hulu subscriber also pays for Netflix. Given that, buying something as large and potentially expensive as Sony Pictures likely wouldn’t figure into its strategy.
The clear exception, so far, is Amazon, which has already spent billions on original content, and Bezos sees it as adding unbreakable value to its Prime program.
A player like Netflix is less likely to make a serious consideration for something as big as Sony since it would be way out of its price range.
What is Sony Pictures worth? Using a recent deal that would have valued rival Paramount Pictures at $10 billion would bring Sony Pictures’ up to $30 billion*, which is crazy since the total market value of Sony itself is $40 billion.
Tech companies generally don’t go for deals that big. Tech founders and CEOs have yet to bring themselves to sky-high deals usually seen among media titans like John Malone, Rupert Murdoch and Sumner Redstone. That era is over.
(That said, the Hollywood Reporter now says CBS head Les Moonves might want to buy Sony Pictures, which makes sense since he’s always wanted to run a large movie studio.)
But if Silicon Valley’s best and brightest want to fulfill their unspoken ambition to take over the world (isn’t that what they really want?), Mark Zuckerberg and Larry Page and Tim Cook and Jeff Bezos will have to start embracing some brass.
If they wait a bit, these properties could become cheaper. Traditional media businesses aren’t growing as fast as they used to, and all the major entertainment conglomerates are quietly assessing how, or if, they should offload parts of their business. It’s a growing list that now includes prize targets CBS, ESPN and CNN as well as Sony Pictures.
Look at ESPN, for example, which has been contending with softer ratings, translating to fewer ad dollars and less in carriage fees from cable and telecom operators.
CBS executives have been looking to tie up with a tech giant for a few years, according to sources. They know growth isn’t going to sustain in the traditional TV ecosystem since fewer people sign up for pay-TV subscriptions. More on that here.
In fact, all TV networks have come under pressure since their business is built around getting paid per TV subscriber, and there are fewer subscribers every year.
Also, movie studios have generally fallen out of favor by their parent companies — they’re fickle revenue beasts, often the least predictable business unit in the house.
In the case of Sony, it fell to fifth place among movie studios last year with less than $1 billion in box office sales — just a few years after scoring second place in 2012 with more than $1.8 billion.
Sony Pictures may not be the answer. But there’s something real in Peak TV, the idea promulgated by FX president John Landgraf that the explosion in original TV shows — thanks to Amazon, Netflix, Hulu, etc. — now makes it harder for good shows to stand out.
That only underscores the priority behind owning content studios. The rise in programming from Amazon and Netflix and now possibly Apple and Google means Silicon Valley is just recreating the machine Hollywood created.
There are already good studios in the system. No need to reinvent them, if they’re already available.
* Here’s the math: Since Paramount generates about $2.6 billion a year, only a third of Sony Pictures, that $10 billion value suggests a multiple of 3.8 times its sales. Sony Pictures’ approximately $8 billion in revenue would imply a deal value of $30 billion. Lots of caveats here, given Sony was hacked and it fell to fifth place in the studio rankings. That said, it also potentially shows why Sony CEO Kaz Hirai would unload the unit.