Telia has completed its takeover of Bonnier Broadcasting, after securing conditional regulatory approval. We find it difficult to get excited about this kind of vertical integration. The regulatory conditions imposed on the deal are already a bad sign. There are also few synergies to be had, apart from the operator being able to give away a subsidised OTT service to premium customers. These kind of deals appear to be largely window dressing for sluggish growth at telecom operators.
The takeover of Bonnier is of course not the first such deal in the sector: Comcast acquired NBCUniversal, AT&T bought Time Warner (now WarnerMedia), Telenet took over De Vijver Media. The latter came with conditions on offering the channels wholesale and collecting audience figures over Telenet's TV platform. Telia's takeover of Bonnier Broadcasting, a commercial broadcaster in Sweden (TV 4) and Finland (MTV 3), with a premium and OTT offer of films, series and sport for the Scandinavian market (C More), fits the pattern.
Broadcasters in trouble
Nevertheless, there appear to be only a handful of telecom operators that see something in vertical integration with a broadcaster. The broadcasters are also having a difficult time in the days of cord cutting, raising the question whether they are such a wise takeover target. Internet companies (Netflix, Apple, Amazon) are setting the tone for the market, followed by the big Hollywood studios (Walt Disney, WarnerMedia, NBCUniversal). They are bypassing the traditional distribution system of operators and broadcasters. Amidst the violent changes in the market, is there room still for small broadcasters?
Operators buying studios/broadcasters like WarnerMedia and NBCUniversal does not change the picture much. Offering their OTT services at a discount to broadband or postpaid customers will not bring any major advantage and reduces the OTT service to just an instrument to limit churn. And that comes at a cost - not only for the takeover, but also for the cross-subsidy provided.
No revenue synergies
The reasons for the Bonnier acquisition were not much more concrete: "we will serve customers and viewers in new ways and create new business opportunities". The companies expect synergies of SEK 600 million (almost EUR 60 million) by 2022 (Bonnier revenues: around SEK 7.5 billion, so about EUR 700 million). These were not detailed further but most likely are procurement advantages, as Telia will no longer need to pay for Bonnier's content. Where the innovation will come from is completely unclear, and there was no further clarity in the company's recent communication. In the end, it is only broadcast TV, shifted in part to on-demand and online distribution. A merger of telecom and broadcast is not necessary for this. Telia has not provided any insight into the planned synergies, nor especially any extra revenue.
Bonnier potential limited
Telia was forced to make some concessions to regulators, such as maintaining a wholesale channels offer for other providers, at reasonable conditions. The premium channels and OTT rights also have to be offered to other operators. This underlines the risk for Bonnier: its distribution will be focused primarily on Telia customers, while other wholesale partners become second-class customers. To start, this is not the optimal use of Bonnier's content. Furthermore, the wholesale requirements limit Telia's ability to differentiate its offering based on Bonnier's services.
Conclusion: window dressing
The conclusion is clear: there are very few benefits to combining telecom (operator) and media (broadcaster) companies. Of course the costs of acquiring content may be reduced, but the broadcaster also loses income. In terms of revenue synergies, we can see none, and the regulators forbid any kind of exclusive distribution. Telecom operators may brighten up their growth profile, helping offset the saturated market for telecom services, but this is just window dressing. The shift to OTT offers opportunities for AT&T (via WarnerMedia) and Comcast (via NBCUniversal), but there are only a handful of this kind of dominant broadcast companies in the world. Furthermore, they pay a high price for such takeovers. Giving the OTT service away free then to existing customers only brings further pressure on margins.
