The Australian M&A Outlook: Technology, Media and Telecommunications Industry Insights

The past decade has seen increased digitisation of advertising. This has unlocked new combinations of media players, for example, out-of-home (OOH) merging with forms like radio and TV. For instance, UK radio company, Global, acquired two OOH players (Exterion and Primesight) to create a combined value proposition for their clients. In Australia, there is potential for an OOH giant like oOh!media to acquire radio broadcasters such as Macquarie Media to create a compelling proposition for its customers. 

Media companies are now looking to buy assets with new technologies, to better target their audiences. In particular, they’re seeking enablers of targeted advertising (e.g., data analytics, AI, or augmented reality/virtual reality (AR/VR)).

At a global level, recent deals have been driven by the objective to bolster new genres. For example, Walt Disney (kids) acquired 20th Century Fox (drama, action/adventure), Hotstar, and ESPN (sports). Discovery (factual) came together with WarnerMedia (drama, action/adventure).

The pandemic has prompted customers to switch allegiances from cinema to streaming using subscription video on demand (SVOD), although there is a (small-scale) swing back to cinema as the pandemic has become endemic. This has led to the focus of content-driven deals in media shifting towards streaming content. For example, Amazon acquired MGM for the back catalogue; Netflix acquired StoryBots for the kids library. More recently, Netflix has been acquiring gaming companies such as Night School Studio, Next Games, and Boss Fight Entertainment to add gaming and related content to its proposition, to appeal to younger generations.

Increasingly, big studios are pulling content from other SVODs and going direct to the consumer (D2C) with their own version of SVOD. This is something Disney has done effectively with Disney+, and Paramount has followed suit with Paramount+. HBO is already thriving in the US with streaming platform HBO Max, and it’s only a matter of time before they enter Australia.

Local players should strengthen content creation and access to content rights through M&A or strategic partnerships. For example, just before Foxtel launched Binge, they signed exclusivity with WarnerMedia, keeping HBO Max away from the market for a while and bringing all the content to Binge.

It’s yet to be seen which local players will survive in the long term. Will Kayo, Binge or, Stan survive in the face of competition from Netflix, Amazon Prime, Disney+, Paramount+, and, eventually, HBO Max?

In the past, eCommerce has been all about transactional services. More recently, however, there’s a trend towards expanded offerings – via partnerships and acquisitions of retailers and brands – to create a multi-branded proposition. Media companies are embracing this trend, too. There’s increasing interest not just in capturing revenue directly from consumers but also in capturing eyeballs for advertisers. It’s little wonder, then, that Peacock and Hulu have an ad-supported tier, along with an ad-free premium tier. More recently, Netflix has announced launching its own ad-supported tier as they couldn’t ignore this lucrative revenue stream anymore for a sustainable business.

Focus has also shifted from passive advertising to influencers and direct advertising. Elon Musk’s recent purchase of Twitter is no surprise as he wants to get his share of global direct marketing channels.

Production businesses are in a perfect margin squeeze at the moment as cinema audiences wane, reducing topline, while COVID-safety rules have increased costs. 

At the same time, the pandemic has seen the volume of media consumption skyrocket, making production an attractive market from a volume perspective. Streaming businesses are looking for large volumes of content to bolster their offerings, including investing heavily in originals.

With dwindling margins, many smaller studios are looking to integrate with bigger production houses and, globally, there’s been plenty of M&A activity in the past 12 months. Australia is not untouched by this trend as some of the local studios are looking to either bolster through the acquisition of smaller players or play a bigger role by being acquired by a global giant.

The majority of recent transactions involved mobile towers, data centres, and last-mile fibre. Looking ahead, the wholesale asset classes worth watching are:

• Passive fibre: As data consumption grows so will the need for fibre. Demand is likely for the fibre itself, and not the active electronics. (However, there may also be a market for ducts.) High up-front capital investment means there are few new entrants here, but fibre has a useful life of more than 20 years, and a relatively stable revenue profile.

• NetCos: Also known as fibre networks, NetCos are having a moment thanks to growing commoditisation and continued demand for data. 

• Satellite: New technologies, such as Low Earth Orbit (LEO) satellites, mean satellite access is becoming more affordable. Satellites are increasingly being seen as a viable option for delivering broadband services to regional and rural areas.

• Subsea cables: Cloud demand and global connectivity continue to underpin the deployment of new subsea assets such as the recently launched Southern Cross NEXT, and Hawaiki Nui in 2025. Characterised by long-term contracts, this asset class is beginning to attract more attention, while geopolitical tensions are seeing operators look for new or alternative routes for greater redundancy, creating further opportunities.

• Data centres: Demand continues to grow due to accelerated digitisation and increased vigilance over data security. Scale is the main hurdle in this asset class, with increased scale putting pressure on unit prices to customers. This is offset, however, by strong margins and continued growth.

Post-pandemic, new ways of working will create fresh commercial opportunities for telecom operators, underpinning the development of products and services. This will translate into new revenue streams for existing assets.

Also, new-use cases are emerging for the telco industry, thanks to tech advancements in AI, automation, and AR/VR. This is especially the case when combined with 5G (and, eventually, 6G), opening up potential areas for collaboration.