It's All About Controlling the Content

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The world is changing, and traditional media is rushing to play catch up. Companies that historically focused on programming are looking to add delivery systems like internet providers, while those that have traditionally owned distribution structures are moving to control content suppliers.

You wouldn't have to look far to find the cause of all this pairing up. The evolving paradigm of internet-delivered video, led by streaming pioneer Netflix (NASDAQ: NFLX), has changed both consumers expectations and behavior, and traditional media -- with its time slots and its advertising model -- is becoming increasingly less relevant.

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An unintended consequence that came with the popularity of streaming is the reshaping of the traditional media model.

Wanna get hitched?

Consider these recent moves by the biggest companies in the industry.

Telecommunications giant AT&T (NYSE: T) has been working to roll Time Warner (NYSE: TWX) into its stable. Prior to a proposed agreement that would combine Walt Disney (NYSE: DIS) with a majority of the assets of Twenty-First Century Fox (NASDAQ: FOX) (NASDAQ: FOXA), Fox made a bid to acquire British cable company Sky TV (NASDAQOTH: SKYAY). In an effort to block that deal, cable giant Comcast (NASDAQ: CMCSA) made a competing bid that was 16% higher in order to gain Sky's business for itself. Disney just offered to acquire Sky News to help Fox consummate the remainder of the Sky deal.

What are these companies looking to gain with these marriages of convenience? Let's look at a few and see what they hope to achieve.

Declining subscribers and cord-cutting

AT&T's deal to acquire Time Warner would combine the company's vast distribution network of pay TV, wireless, and broadband services with Time Warner's content assets, which include cable channels CNN and HBO, and Warner Bros. Studios. By gaining control of these media assets, the telecommunications company seeks to counter subscriber losses at its DirectTV satellite service. The company recently launched DirectTV Now, a less expensive bundle hoping to attract cord-cutters. Controlling additional content sources helps further that agenda.

Comcast is primarily in the distribution side of the house via its namesake cable TV and broadband operations. Its acquisition of NBCUniversal in 2011 added content to the mix, bringing NBC's linear TV station, cable channels like Bravo, USA, and E!, and Universal movie studios -- similar to what AT&T is trying to accomplish in acquiring Time Warner. Comcast's competing bid for Sky would gain the company 23 million subscribers across Europe, nearly doubling its current count of 29 million and the opportunity to cross-sell its programming on different continents.

Fox sought with its Sky bid to gain the largest pay TV operation in Europe. Sky had already launched its own streaming option, Sky Now, which would have given Fox an additional distribution platform for its award-winning programming. Sky also has broadband, telephone, and mobile offerings that make it an attractive target -- along with 2 billion pounds ($2.8 billion) in annual profits.

Disney has struggled with cord-cutting and declining subscriber rates for its flagship ESPN sports network. Disney's bid to buy Fox -- which includes 44 regional sports networks -- will help feed the ESPN Plus over-the-top service set to debut later this month. The deal also includes the acquisition of Sky TV, which will by default increase Disney's presence in Europe. The acquisition would enlarge the company's already sprawling media empire by adding the rights to Fox's TV shows like Modern Family, The Simpsons, and This Is Us, as well as FX hit shows The Americans and American Horror Story.

The House of Mouse would regain control of many of its prodigal Marvel characters including X-Men, Deadpool, and The Fantastic Four. The deal would boost Disney's ownership in Hulu, increasing its stake to 60%. It would also become the home of Fox's movie business, which created such hits as Avatar, The Grand Budapest Hotel, and The Shape of Water. This windfall of content will supercharge Disney's move into streaming, with a direct-to-consumer service scheduled to debut late next year, as well as the aforementioned controlling interest in Hulu, providing another streaming venue.

Trying to level the playing field

Netflix broke the mold when it first introduced streaming video, then again with its move to produce and eventually own its own content. The success of House of Cards and Orange is the New Black paved the way for hits like Stranger Things, 13 Reasons Why, and Narcos. The template has also spurred subscriber additions, topping 117 million to end 2017, and it produced revenue growth that topped 33% year over year.

The consistently chart-topping growth and a place in the evolving media landscape is something other content suppliers and delivery systems operators covet. By controlling both the distribution and some of the programming, these companies will be a step closer to the Netflix model, while still hanging onto their old cash-producing media empires.

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Danny Vena owns shares of Netflix and Walt Disney and has the following options: long January 2019 $85 calls on Walt Disney. The Motley Fool owns shares of and recommends Netflix and Walt Disney. The Motley Fool recommends Comcast and Time Warner. The Motley Fool has a disclosure policy.