The Spectacular End to the Myth That Content Needs Distribution

Dear Readers,

In six weeks, the dons of media and tech will reconvene in Sun Valley, Idaho, at Allen & Co.’s annual conference. With last year on hiatus—and the headlines we’ve seen of late (Discovery! WarnerMedia! Gates!)—it is sure to be a lively affair.

Let me suggest a panel discussion for the vaccinated tech and media moguls as they sit in the overly air-conditioned Sun Valley Inn for a classic 7 a.m. morning session: how we got it wrong. 

I’m talking about the maxim that has hung over discussions at the conference for at least the last decade—the idea that content needs distribution channels and vice versa. 

It’s embedded into the fabric of the gathering. The people who control the pipes (telcos) and the eyeballs (internet companies) strike up meetings with those who create hit content (media) and talk about what they should do together. The telco and tech people get a little starry-eyed when they think, “Wow, we could own HBO! The premieres!” 

And so we saw major deals, like Verizon’s $8.3 billion double acquisition of Yahoo and AOL and AT&T’s $79 billion acquisition of Time Warner. As of this week, Verizon and AT&T have decided to jettison them all—jobs and money wasted when the logic just didn’t work.

So what did those dealmakers get wrong? Ben Thompson has a nice essay this week on one of the challenges: mistakenly equating demand with distribution. It’s worth a read. 

There are many other factors. One of them was the fear that sent media companies into the hands of tech companies in the first place. Another was a generation of media CEOs who wanted to retire and hand over their declining assets while they could still make more money.

Yes, the prices were good, because the distribution giants had—and have even more—money to spend. So there was that. 

But media companies just didn’t understand, frankly, that they already had some of the same tools tech companies use to generate demand. The hardest part about building a direct-to-consumer business isn’t the billing system or figuring out how to reach people on their phones. (It’s called an app and a push notification.)

The hardest part is creating content people want—again and again. And it turns out when it comes to making more of that content, ownership by a distribution company isn’t really an advantage and may even be a disadvantage, given the conflicting cultures and differing capital needs of distribution and media businesses. 

Which is why a newly freed WarnerMedia’s plan to merge with Discovery makes sense. It’s a media deal. It’s why BuzzFeed’s acquisition of Huffington Post, also part of Verizon’s divestitures, and talks to acquire Complex Media, a story we broke, also make sense. 

Do the deals guarantee that together the companies will make more great content? No. But they put media brands under people with track records in the media business and give them economies of scale on things that matter when it comes to content. 

It’s worth noting that not all distribution companies were tempted to take the media plunge. Before AT&T bought it, Google and Apple kicked the tires on Time Warner and others. They didn’t bite. 

Discerning The Information readers will point out that we reported this week Amazon is in talks to buy MGM. So is the distribution-content deal spree really ending? 

Well, for starters, a deal there (between $7 billion and $10 billion) is far smaller than these megadeals, especially considering Amazon’s size. Our team also reported Amazon pursued this deal after it lost out on some key old movies and television shows it needs for its Prime Video service.

So I tend to see it as a very targeted “tuck-in” deal that could still make sense. 

As for the overall landscape, it does feel like there has been a sea change. As recently as a few weeks ago, I was telling a friend in the media business that I was worried tech companies would eventually own all the great content companies. Tech just has so much money to spend, and media companies thirsty for exits have been susceptible targets.

It won’t surprise you that I don’t welcome that future, mostly because those deals tend to result in the loss of media jobs, and I strongly believe journalism needs to be independent. 

So I’m delighted—and slightly surprised—to find myself now wondering if media companies’ fate may not after all lie in the hands of tech. Our scoop-tastic media team also reported Friday that Axel Springer is in talks to acquire Axios, another media-media deal that could value Axios at $400 million. 

That’s a future I can get behind—one in which strong media companies get stronger and grow existing and future brands in cultures devoted to excellent content and excellent journalism. 

I’ll leave the discussion on why we may not want utter consolidation of media to another day. It’s been a good week for the media business. It’s time, for once, to be optimistic.