In the ever-evolving landscape of the media industry, the axiom that “bigger is better” is being increasingly questioned. As companies pursue media mega mergers, the drive for larger entities often overshadows the crucial need for vision and innovation. This article delves into the complexities and challenges of relying solely on size, exploring key lessons from past industry shifts and highlighting the importance of strategic foresight as the media world confronts a dynamic future.
Much has been made in recent weeks about former Time Warner CEO Jeff Bewkes’ now-famous quip likening Netflix to Albania.
In 2012, Bewkes dismissed talk of Netflix challenging HBO’s dominance in premium TV as being akin to the potential for the “Albanian army to take over the world.” Well, Albania has risen. On Dec. 5, Netflix unveiled a monumental merger agreement that many in the industry never thought they’d see. Netflix’s attempt to take over Warner Bros. and HBO Max vividly exemplifies how dramatically the world has changed, and how quickly power dynamics can shift.
Netflix will have to fight for its prizes. Paramount Skydance CEO David Ellison will not go quietly; he launched a hostile takeover effort after being rebuffed by the Warner Bros. Discovery board in favor of Netflix.
But those of us with long memories can’t help wondering if it had to be this way for Warner Bros. Discovery — or WarnerMedia or Time Warner or AOL Time Warner, as the company has been variously known over the past 25 years.
The sale to Netflix marks the first time that Warner Bros. and HBO will be integrated into an existing entertainment brand. In 2018, when Time Warner was acquired by AT&T, the parent company had no other significant media assets. The same was true in 2001 when AOL swallowed up Time Warner in a $100 billion deal that was then the largest corporate merger, and eventually, one of the biggest detriments to shareholder value in history.
The merger mania of the past 25 years has its roots in an earlier landmark deal — the 1989 pact that united Time Inc. and Warner Communications as the world’s biggest media conglomerate of that era.
Steven J. Ross, the head of Warner who took the reins of the combined company, praised the merger for bringing together Time Inc.’s unparalleled journalism brands and HBO with a Hollywood studio. In each subsequent deal, CEOs have echoed this sentiment: Bigger is better. One plus one will equal four, and by the way, costs can be saved through overlapping operations (often at the expense of jobs).
Yet, with the benefit of hindsight, it’s clear that the relentless focus on scale blinded Warner Bros.-HBO to the potential of emerging trends — they missed recognizing the rise of competitors like the “Albanian army” at their doorstep.
By the mid-1990s, after acquiring CNN and Turner Broadcasting, Time Warner became a giant, a financial institution deemed too big to fail. This obsession with maintaining size and scale hampered their ability to innovate, despite the opportunity for transformative possibilities. HBO, to its credit, pioneered on-demand show availability on cable, though the technology was initially cumbersome. Yet both HBO and Warner Bros. were unprepared for the consumer-oriented streaming revolution that Netflix championed more than a decade ago.
“The media industry should be embarrassed for their lack of imagination, guts, and strategic thinking,” recently wrote analyst Michael Nathanson of MoffettNathanson, who worked at Time Warner in the early 1990s. “Time Warner had all the pieces to create the next great online business, the next great video streaming platform, and even the next great streaming audio company,” Nathanson wrote. “What they had in world-class assets, they sorely lacked in managerial discipline, technology skills, and an investor base willing to endure deep losses to build these assets.”
As three big companies and one billionaire CEO vie over this chapter of the streaming wars, it’s time to question the “bigger is better” model for media, given the track record.
Netflix, consider yourself on notice.
(Pictured: Former Time Warner CEO Gerald Levin and AOL chief Steve Case announce the AOL-Time Warner merger in January 2001)
