Media companies are having an identity crisis. And, just like in life, coming to grips with who they are will define the rest of their existence.
It used to be simple: there were content companies, distribution companies and technology companies. Disney was a content company. It made movies and TV shows. Comcast was a distribution company. It provided cable hookups to watch programs that Disney (and many others) make. Google was a technology company. It made phones and set-top boxes and operating system software.
The blurring began about a decade ago, when Comcast acquired NBCUniversal (the parent company of CNBC). AT&T, mostly a tech company, went big into distribution when it acquired DirecTV in 2015, then bought content behemoth Time Warner in 2018.
As television has grown more and more connected to the internet, new layers of distribution have developed. Companies like Roku aggregate streaming applications through hardware. Companies like Netflix aggregate content within a platform.
Some companies, like Comcast, are trying to play at nearly every level of the media supply chain, offering broadband, creating Flex broadband boxes, developing and selling the Xfinity/X1 operating system, creating Peacock as a new digital distribution platform and selling NBCUniversal content to other platforms.
Establishing dominance at every level will be difficult. It's part of the reason why Peacock and AT&T's HBO Max are holding out from carriage deals with Roku and Amazon, as CNBC reported earlier this week. It's also why Google suddenly jacked up its YouTubeTV pricing 30% in the middle of the pandemic. Companies can only do so many things well.
The path these companies choose will dictate how much they spend on content, their M&A strategies, and ultimately, their stock prices. Welcome to the new world order of media.
There are now three different tiers to content distribution, each relying on the layers below it.
The base level of distribution is the same as it's always been -- a pipe to the home. The only difference is now the connection may be mobile broadband (such as Verizon's 5G Home) instead of cable or fiber.
The next level of distribution is new -- aggregating streaming applications, which are replacing linear networks as the main channels of content, and delivering them in new types of hardware and software.
In the old world, pay-TV companies owned this level of distribution. You'd get a set-top box through Comcast or Dish, and it would contain all the linear TV channels that you subscribed to.
But cable companies often didn't make their own set-top box, and the makers of those boxes (Cisco, Pace, Arris, TiVo, Broadcom, etc.) didn't shift quickly or successfully enough to offer digital TV hardware.
Instead, that market went to Roku and Amazon (Fire TV), which control about 70% of the more than 400 million connected U.S. TVs. Apple (Apple TV), Google (Android TV/Chromecast), Samsung, Comcast (Xfinity/Flex), Microsoft (Xbox) and Sony (PlayStation) also play in this world.
That's a lot of companies aiming to "control the living room," as Lightshed media analyst Rich Greenfield wrote in a note to clients this week. The companies that control your TV can theoretically run your entire home through connected devices and voice applications. It's not a stretch to imagine consumers living in an Apple House or an Android House or an Amazon House.
The third level of distribution are companies aggregating content from different producers within their subscription video services. This is Netflix and Amazon Prime Video and Hulu -- services that have licensed content from other companies and added their own original programming. These companies want you to spend as much of your life as possible within their application. As Netflix has said, the main competition is sleep.
These kinds of services act as mini-cable services or jumbo networks. "Three to five" of them will ultimately succeed, said Starz CEO Jeffrey Hirsch in an interview.
"Whether it's Peacock, HBO Max, Netflix, Amazon or Disney and Hulu, these guys are going to be fighting to be the primary aggregator that serves everybody in the home," Hirsch said. "Eventually it's going to be kids, sports, news and weather. These guys are fighting to replace the traditional cable TV bundle."
The overlap is where things start to get messy -- and where all of the intrigue of media and technology lies right now.
As Hirsch said, it appears AT&T's HBO Max and Comcast's Peacock would like to join the ranks of the large umbrella platforms. They want their applications to be the center of your viewing world -- hence the slogan "HBO Max: Where HBO Meets So Much More." This is partly why both of those companies are currently fighting Amazon and Roku in carriage negotiations.
But it's not clear yet that Peacock will have the breadth of content to do this.
Then there's ViacomCBS, which is planning to launch its expanded CBS All Access application later this year. Does ViacomCBS also want to be a platform? Its CEO Bob Bakish said earlier this year that he wanted to be both a platform and an arms dealer, keeping some content exclusive and licensing some to other distributors, like it did with Peacock earlier this month.
Can HBO Max get enough subscribers to pay for the amount of content spend it will need to compete with Netflix? Is Apple TV content to be a premium niche service or does it want to be Netflix?
With Disney+, ESPN+ and Hulu, Disney seems primed to be one of the dominant content companies. But so far, Disney doesn't own a living room device. Could Disney acquire Roku? Could it build something itself? Does it want to be something closer to Comcast? Does Netflix?
"You could end up with somebody that has Charter's Spectrum broadband into the home, with an Apple TV, spending their time watching Peacock," said Hirsch. "It kind of feels like if you put all these companies in a pot and shake it out, it's kind of mud. There's so much flexibility and so many combinations for consumers."
Disclosure: Comcast is the owner of NBCUniversal, parent company of CNBC and CNBC.com.