According to the U.S. Census Bureau, as of 2016, millennials overtook Baby Boomers to be the largest living generation group. Millennials, who are defined as ages 18 to 34, now number 75.4 million, surpassing 74.9 million Baby Boomers. With Baby Boomers, ages 51 to 69, reaching retirement age, millennials are now reaching their prime working and spending years. This means millennials will fundamentally change the landscape of the U.S. economy, and for the better. Over the next five-years, the purchasing power of millennials is projected to increase from 133 per cent from $600 billion to $1.4 trillion. With millennials being the largest and most diverse generation in U.S. history, their impact on the economy will be significant. In order to survive in a millennial-driven time, retailers will need to hit the refresh button not only to keep themselves alive, but the U.S. economy too.

To understand how millennials will affect the retail industry, it is important to understand the two factors that have shaped their spending habits. Firstly, is the 2008 recession, also known as The Great Recession. The first wave of millennials entered the workforce during the recession, and this meant one of two things: 1. They were unemployed for a considerable amount of time, or 2. They were employed, but were earning far less than what they should have been. Secondly, is student debt. While millennials are the most educated generation, what distinguishes millennials from other generations is the historic student debt they carry. As of September 2017, the total amount of student debt Americans owe is $1.45 trillion dollars. This, combined with coming of age during the 2008 recession, means millennials have had less access to full-time jobs and wealth than previous generations. Consequentially, this has severely limited the spending power of millennials and had a direct effect on their spending habits.

The spending traits of millennials will hurt U.S. retailers if companies do not take a look at their business models and re-strategize. This is because millennials are putting off major purchases, such as cars and houses. This is a result of being more conservative with their money and not being big risk takers or gamblers. Their inability to own means they opt to rent or lease. Most recently, they have embraced the sharing economy by highly utilizing services such as Uber, Lyft, AirBnb and Turo.

“Millennials are not confident consumers; they are afraid of recession and lack of employment,” Head of Loeb Associates Inc., Walter Loeb said. “They want to own less and lease more, even dresses and suits! Millennials respond to good service and do research on the internet before making a major purchase. They are real-time consumers, shopping for today’s needs and waiting until the last minute to shop for tomorrow’s events.”

Two-thirds of the gross domestic product (GDP) is consumption. This means the economy relies on people spending money. While it is estimated that by 2020, 30 per cent of all retail sales will be to millennials. Because millennials value objects and big-ticket items far less than previous generations, millennials have shifted their focus towards activities and experiences that make make memories. This value is forcing retailers to rethink how to attract millennial purchasers. With millennials’ love of technology and social media, retailers are only now beginning to implement changes to the way they offer their products and services. For example, millennials’ value for convenience and ease of transaction has seen many large supermarkets and retailers offer self-serve checkouts and electronic payment systems that don’t require you to take out your wallet, instead, just a swish of your phone.

While implementation of technology into the retail experience is useful in drawing in the millennial crowd, it is also one of the most dangerous millennial values that threatens brick-and-mortar retailers. A study conducted by BlackHawk Engagement Solutions, an international incentives and engagement company, showed that millennials are “plugged” into mobile and social shopping, which is completely disrupting historically traditional shopping patterns.

“Millennials are leading a change in purchase trends,” BlackHawk Engagement Solutions marketing president, Rodney Mason said. “It’s incredibly important for retailers and retailer marketers to understand how to appeal to this demographic. Millennials are savvy shoppers and many have come of age in a post-recession era. This group routinely comparison shops on mobile to get the best value and shopping experience. The market, however, has not yet capitalized on those habits.”

The retail industry has yet to catch up with the growing number of millennials entering their prime spending age. Retailers need to take into account that it is hard to convince millennials to make big purchases or purchases that aren’t considered a necessity with their limited spending ability. This lack of forward-thinking in the industry is evident in the number of reported store closings and bankruptcies. So far, in 2017, there have been nine retail bankruptcies and as many as all of 2016. Retailers such as J.C. Penney, Macy’s and Sears have each announced more than 100 store closures. However, these closures have occurred during GDP growth (eight straight years of growth), unemployment being under five per cent and steady wage growth. This further strengthens the notion that American storefronts are largely driven by millennial spending habits.

Due to millennials’ savvy shopping ways, e-commerce is eating away at traditional retail. Between 2010 and 2016, Amazon sales in North America quintupled from $16 billion to $80 billion. To put this into context, Sears’ revenue in 2016 were approximately $22 billion—Amazon grew by three Sears in six years. Mobile shopping is also seeing big increases thanks to apps and mobile wallets. Since 2010, mobile commerce has grown from two per cent of digital spending to 20 per cent.

As well as millennials’ love of technology is their equal love of social media, which is apparent in their retail spending traits. They’re on a mission for a bargain and one of the tools that helps them make an informed purchase is social media. Many use it as their primary source to find and hear about products, specials and shopping news. A report published by Deloitte found that 47 per cent of millennials say their decision purchase is influenced by social media. This figure is 19 per cent across all other age groups. Millennials are not listening or looking at a brand marketing messages on their social media accounts. Rather, they’re using social media as a way to review input and feedback about products and services. PricewaterhouseCoopers asked digital buyers about how they make purchase decision online. Nearly half reported that reviews, comments and feedback on social media impacted their shopping choices. With the ability to look for the cheapest price of a product at the drop of a hat, e-commerce is hurting retailers who generally offer their products at a higher price than their online competitors.

One company that is revitalizing itself to appeal to millennials is Estee Lauder. Estee Lauder recently announced a partnership between itself and YouCam Makeup to enhance the mobile phone browsing experience while still attracting customers to brick-and-mortar stores. App users can now apply makeup through uploading an image of themselves. This allows users to try on as many shades as they want before deciding to make a purchase in-store. To provide a unique experience for in-store customers, YouCam’s virtual in-store magic mirrors encourage customers to further engage with products, try on more options and take selfies.

About 70 per cent of Estee Lauder products sold today are new, have been updated or re-formulized in the wake of millennials entering their prime spending age. It’s most recent acquisitions include Too Faced, which began as a social media start-up and Becca Cosmetics, a makeup line that relies on social marketing and is designed to appeal to consumers of all ethnicities. Estee Lauder has relied heavily on acquisition to bring in millennial dollars. Their growth has been driven by the group’s “cooler” brands such as Jo Malone, Tom Ford, MAC, La Mer and Smashbox.

Not only is Estee Lauder making changes to cater for millennial customers, they are also catering for their millennial employees. The group’s attempts to tap young employees began a couple of years ago with retail immersion days, where Estee Lauder CEO Fabrizio Freda was shown how millennials “fall in love with brands”. Following that, the company created reverse-mentoring programs, where young employees were paired with senior Estee Lauder managers to teach them how to be tech-savvy shoppers by learning how to utilize social media during this process. Estee Lauder also created millennial advisory boards to offer advice to executive teams.

Based on Estee Lauder’s learning experience from millennials, the company launched a product line, The Estee Edit, targeted at millennial women. The line was promoted heavily on social media by reality television stars, such as Kendall Jenner. The makeup consisted of bright shades, all products were under $50 and were featured on numerous YouTube video tutorials—all that appeals to a millennial.

So far, the results look promising for Estee Lauder. During their Q4 quarterly earnings announcement, they reported strong financial results as well as for their fiscal year, which ended June 30, 2017. For the three months ended June 30, 2017, Estee Lauder reported net sales of $2.89 billion, a nine per cent increase compared with $2.65 million in the prior-year period. The recent acquisitions of Too Faced and Becca Cosmetics outperformed expectations, with incremental sales contributing to approximately 3.5 percentage points of the reported sales growth. The company posted sales growth in most brands across-the-board in all geographic regions (Asia/Pacific, Europe, the Middle East & Africa, and The Americas) and product categories, except hair care. For the year, Estee Lauder achieved net sales of $11.62 billion, a five per cent increase compared with $11.26 billion the previous year. Incremental sales from Too Faced and Becca Cosmetics contributed approximately two percentage points of the reported sales growth.

While it appears Estee Lauder’s efforts have achieved success thus far, other retailers will need to catch up in order to stay ahead of the millennial game or risk becoming, old, outdated and unappealing. For retailers to target and attract millennial shoppers successfully, there are a few important aspects to note: 1. Smartphones are a primary means to connect to the internet. Smartphones are the dominant method of connection to the internet for millennials, with 89 per cent of them the device to connect, versus 75 per cent who use laptops, 45 per cent tablets and 37 per cent desktop computers. Retailers will need to have a mobile-first strategy if they want to stay relevant with millennials. 2. Millennials love for social media means retailers should integrate digital media with their traditional advertising strategies. Brand engagement and peer discussions are the key making brands memorable. Retailers will need to encourage customers to leave feedback, or create a social media hashtag for millennials to use with their posts. 3. Google and Amazon are the go-to sites for price comparison. Almost 80 per cent of millennials are influenced by price and 72 per cent search for a coupon online before making a purchase. An average of three minutes is spent searching for coupons. To compete, retailers will need to offer competitive pricing, whether that be product discount, volume discount or distribution of coupons/promo codes.

While millennials are more conservative with their money compared to other generations, millennials are willing to part with their cash if retailers can impress them; their business must be earned. If retailers can tap into what millennials want, one thing is clear—that millennials’ love for technology, convenience and experiences will help grow the U.S. economy. These factors will drive competition within many sectors and industries, and if companies don’t keep up, they risk going out of business. This is the new reality for producers of goods and services.

References

• http://www.pewresearch.org/fact-tank/2016/04/25/millennials-overtake-baby-boomers/

• http://fortune.com/2015/05/27/7-facts-every-business-should-know-about-millennials/

• https://studentloanhero.com/student-loan-debt-statistics/

• http://www.goldmansachs.com/our-thinking/pages/millennials/

• https://www.theatlantic.com/business/archive/2017/04/retail-meltdown-of-2017/522384/

• https://www.forbes.com/sites/jimmyrohampton/2017/05/03/does-social-media-influence-millennials-shopping-decisions/#6ee3be874cf3

• https://www.forbes.com/sites/greatspeculations/2017/04/19/how-estee-lauder-is-looking-to-attract-millennials-to-brick-and-mortar-stores/#41f572017cd2

• https://www.ft.com/content/e98d3ada-9acd-11e6-8f9b-70e3cabccfae

• https://www.elcompanies.com/news-and-media/newsroom/press-releases/2017/08-18-2017-114420311

• https://www.entrepreneur.com/article/253582#

In October of 2016, telecommunications giant AT&T agreed to buy Time Warner for $85.4 billion. This merger would bring together a content distributor with a juggernaut of content production.

The deal was set to close by the end of 2017 until the Department of Justice stepped in. On November 20^th, the Justice Department sued to block AT&T’s acquisition of Time Warner.

This case has the potential to be a landmark case and a sign of changing antitrust tides in the Justice Department. This result of this case could have implications beyond this one deal.

The Great Content Desire

AT&T is a multifaceted telecommunications company and Time Warner owns channels and produces originals TV shows and movies. Their businesses intersect but do not compete. AT&T wants to acquire Time Warner so it can pair its existing content distribution streams with Time Warner’s content production.

AT&T divides up its company into four operating segments:  business solutions, entertainment group, consumer mobility and international. Consumer mobility is the segment traditionally associated with AT&T and provides wireless service in the United States. The entertainment group, which includes recently acquired DirecTV, some content production, advertising and broadband internet, is at the heart of the conflict around the merger.

AT&T wants to acquire Time Warner so it can own its premium content produced by HBO and Warner Brothers and the content produced by the channels of Turner Broadcasting, which includes: CNN, TBS, TNT, TruTV, among others. The merger would also give AT&T the sport broadcasting licenses Turner Sports including the rights to NCAA march madness. It is this mass of content production that AT&T is craving.

Across the tech and telecommunications industries, there is a general hunger for content and content production, especially as there seems to be no slowing down of online streaming content. Everyone is trying to keep up with and compete with Netflix. For example, Apple recently invested $1 billion to produce original TV shows and movies. AT&T’s motivation behind the merger is its hunger for content.

Merging with Timer Warner would diversify AT&T’s entertainment portfolio and allow them to become a competitor of streaming giant Netflix. If the deal goes through AT&T would have a control over both premium content production and content distribution channels, like DirecTV and their wireless cell phone service.

Vertical Merger

There two main types of mergers: vertical and horizontal. Horizontal mergers, when direct competitors merge, raise more concerns of a reduction in competition. When two competitors merge they are directly reducing competition in a field.

The AT&T and Time Warner are not direct competitors; therefore, their merger is a vertical merger. In this vertical merger, it would be a unification of a distributor, content distribution platforms of AT&T, with a supplier of a product, the content produced by Time Warner. Technically, by merging there is not a removal of competition in the market. Before and after the merger there will be the same number of wireless service companies and TV cable and satellite companies.

While this merger is vertical, AT&T has also pursued horizontal mergers in the past. In 2011, they ended an effort to acquire T-Mobile. That merger would have directly decreased, already limited, competition in the wireless service market.

On a conference call with reporters in 2016, AT&T CEO Randall Stephenson reportedly said “This is not the T-Mobile deal; there is no competitor being removed from the marketplace…Time Warner is a supplier to AT&T. It’s a classic vertical merger.”

The goal of United States anti-trust law is to ensure competition and prevent the creation of monopolies. Since horizontal mergers directly reduce completion and could lead to monopolies the Justice Department and Federal Trade Commission (FTC) have historically been more vigilant in blocking and preventing horizontal mergers.

The government has only challenged 23 vertical mergers since 1979. Of those 23, three were abandoned by the companies and the other 20 were approved. The government has never won a vertical merger court case.

Effects of the Merger

AT&T’s argues that the goal of acquiring Time Warner is to “give customers unmatched choice, quality, value and experiences that will define the future of media and communications.” They say that the deal will lead to benefits for both investors and consumers.

Some of the possible consumer benefits that AT&T is promoting includes new video innovation and the potential alternative to cable. AT&T in a press release said that “the combined company will strive to become the first U.S. mobile provider to compete nationwide with cable companies… It will disrupt the traditional entertainment model and push the boundaries on mobile content availability for the benefit of customers.”

There is the rationale laid out by AT&T for why this deal should proceed, but there are also legal scholars who believe this deal should go through because if it is successfully blocked by the government there would further reaching consequences.

In the Harvard Business Review, Larry Downes argues that if this deal is challenged then “other pending or likely mergers,” like Disney and 21^st Century Fox, “will be thrown into chaos—and the stock markets along with them.”

In addition to the possible positive effects of the merger that are possible negative consequences. Just because the merger technically would not directly reduce completion, it doesn’t mean there isn’t any risk of this merger resulting in anti-competitive practices.

Time Warner owns three of the top basic cable channels, the top cable news network, and the top premium cable channel. AT&T, thanks to its acquisition of DirecTV, is one of the largest distributors of those channels and their content. When AT&T owns both the distribution network and the content, they have the ability to withhold or increase the price of the content from Time Warner.

For example, they can raise the price of HBO and CNN. This could, in turn, drive customers away from other cable companies and to AT&T owned distribution networks or just lead to a customer having to pay more for AT&T owned content. They would be able to use the leverage of Time Warner’s “must have programming” to restrict competition and give their platforms an advantage. The acquisition of Time Warner would give AT&T the opportunity to stifle its competition through its ownership of highly desired content.

However, Harvard Law School Professor Susan Crawford points out in a Wired article that AT&T’s response to this claim would be that they have “every reason to ensure that Turner content is seen as many places as possible.” She also notes that this argument is flawed as “the revenue AT&T loses by effectively locking competing providers out of its must-have content will be more than made up for by those new subscriptions—available nationwide through DirecTV.”

Possible Solutions

The case most similar to the AT&T Time Warner deal is Comcast’s acquisition of NBC Universal, but the Comcast merger never went as far as with DOJ as the AT&T case has. The Justice Department did not sue Comcast to stop the merger. The DOJ allowed Comcast to buy NBC Universal as long as they agreed to over 150 conditions meant to prevent Comcast from favoring NBC content.

Behavioral conditions, like the ones in the Comcast case, have been a common way the government has dealt with vertical mergers. These measures are harder to ensure are followed and not a foolproof way of preventing anti-competitive practices.

The current head of the antitrust division at the department of justice, Makan Delrahim, has spoken about his dislike of the behavioral remedies in merger cases. In a recent speech, he said that “our goal in remedying unlawful transactions should be to let the competitive process play out. Unfortunately, behavioral remedies often fail to do that. Instead of protecting the competition that might be lost in an unlawful merger, a behavioral remedy supplants competition with regulation.”

Delrahim’s aversion to behavioral conditions hints to an avoidance of this as the solution to the AT&T case.

The alternative to behavioral conditions is structural remedies. These structural solutions, also known as divestitures, force a company to sell off a part of their business.  Maurice Sucke, a professor of antitrust at the University of Tennessee College of Law said that structural remedies “are much easier than behavioral remedies to craft and enforce.”

Prior to the department of justice suing AT&T over the merger, it was reported that A

T&T met with lawyers from the DOJ to discuss possible divestitures. It has been reported that AT&T was urged to sell off either Turner Broadcasting, which includes CNN, or DirecTV for the deal to go through. AT&T showed no interest in these divestments.  In a news conference after the DOJ decision to sue, AT&T, Stephenson said that his company was not willing to give up any assets to get the deal approved.

In Variety, Jan Dawson argues at AT&T needs all parts of Time Warner in order to justify the merger. Turner, which CNN is under, is the most financially profitable segment of the Time Warner business. It has contributed half of its operating income in most recent years. So while, Turner is not the premium content contributor, like HBO or Warner Brothers, that AT&T was originally seeking it does provide its income is important. Dawson’s analysis helps to explain the rationale behind AT&T’s lack of interest in selling off any part of its existing company or Time Warner.

The Political Question

This proposed selling off of CNN has raised some political questions due to the President’s feud with the news network. It is not known if the President had any influence over the DOJ’s decisions in this case.

However, if he did exert influence on the DOJ, “Mr. Trump will become the first president since Richard Nixon to use the levers of executive power to threaten the economic interests of a news organization whose coverage he does not like,” wrote Jim Rutenberg in the New York Times.

Even if there was no specific intervention by the President, Daniel Lyons, a visiting fellow at the American Enterprise Institute, said that AT&T counsel could argue that “these divestiture requirements are not motivated by the fact that the Justice Department thinks that divestiture is necessary to prevent consumer harm but instead that this is motivated by a more political purpose”

What’s Next

Following the lack of agreement over divestments, the DOJ proceeded to file a case against AT&T. Cecilia Kanf and Micahel J. de la Merced wrote in the New York Times that the DOJ suing AT&T is “setting up a showdown over the first blockbuster acquisition to be considered by the Trump administration and drawing limits on corporate power in the fast-evolving media landscape.

In a statement on the decision to sue, Delrahim said that “this merger would greatly harm American consume it would mean higher monthly television bills and fewer of the new, emerging innovative options that consumers are beginning to enjoy.”

Moving forward the DOJ has indicated they would still be willing to negotiate a settlement with AT&T, however, if they cannot reach an agreement the case will go to court. There is very little precedent for a vertical merger antitrust case going all the way to court.

The result of this case could also signal a change in antitrust regulation enforcement in the United States. It could affect the result of other pending or proposed mergers. For example, it could have implications for Disney’s exploration of acquiring 21^st Century Fox.

It could even have ramifications on verticals mergers in entirely different sectors. CVS recently announced its acquisition of insurance company Aetna, a healthcare vertical merger. The result of the AT&T Time Warner case could set precedent for the DOJ or FTC’s actions regarding the CVS merger.

In the end, the lack of precedent in cases like this leaves a lot of uncertainty of what happens next. The justice department could continue to be lenient on vertical mergers or change course entirely and affect all vertical mergers to come.

Sources 

https://www.bloomberg.com/news/articles/2017-11-20/at-t-is-said-to-face-u-s-antitrust-lawsuit-over-time-warner

https://www.cnbc.com/2017/11/21/dojs-lawsuit-to-sink-att-time-warner-deal-is-short-sighted.html

https://www.politico.com/agenda/story/2016/10/att-time-warner-merger-paper-000224

https://www.wired.com/2016/11/the-att-time-warner-merger-must-be-stopped/

https://www.npr.org/sections/alltechconsidered/2016/10/25/499185907/the-at-t-time-warner-merger-what-are-the-pros-and-cons-for-consumers

https://nypost.com/2017/11/30/why-consumers-should-fear-the-att-time-warner-merger/

On November 6^th, 2017, The Walt Disney Company’s potential acquisition with 21^st Century Fox was first announced, and since then, has been the talk of all major media platforms. Although this sale has been thrown around, on and off, for the past month, CNBC reported on December 5^th that Disney and Fox could be closing in on the $40 billion deal, as early as next week. But despite this acquisition not yet being official, it alone speaks volumes about our current state of the entertainment industry, and the rapid shifts taking place in the movie business today.

“What is striking about this deal is that, presuming it goes through, it is evidence that both Fox and Disney have fully internalized how the world has changed and are adapting accordingly,” said the stratechery. In other words, networks have two options: adapt or boot, even if it means teaming up with your competition.

It is no secret that the internet has changed our media landscape—especially the way in which we now consume most, if not all, of our video content via online and on-demand. This change has been brought on by giants like Netflix and its rapidly growing power. So similar to how broadcast television destroyed printed content, a comparable domination is happening between broadcast TV and internet entertainment, with the latter in first place.

Companies like Facebook and Netflix are “dominating the digital distribution of digital video content,” as stated by CNBC, and Disney must contemplate what’s at stake to remain on top. The mutual factor in possession of power is access to its customers at the lowest distribution cost—this distribution cost has become close to zero thanks to the digital age. And access to customers is a result of providing the best user experience possible, as Netflix does—and once you provide that, you have your users hooked—and more users mean, again, all the more power.

The stratechery explained it best that “[if] selling the rights to a television show to a broadcast network and an international channel and whoever else wants it is good, then selling streaming rights to Netflix is even better! After all, the content still costs the same amount to make, and now it is generating more revenue. This, of course, is exactly what content producers did.” Disney did have its content on Netflix for some time, which was great for added reach and exposure. But they don’t just want to do “better,” they want to be the best.

It is known by most in the industry that Netflix is currently the world’s leading internet entertainment service, with more than 109 million subscribers in over 190 countries. But on August 8^th, 2017, Disney announced that it will pull its movies from Netflix and create its own direct-to-consumer streaming service in 2019. Netflix’s stock dropped over $10, from $181.33 to $169.14, just two days following the news, which shows the power that Disney holds. One reason for this was due to the shareholders’ fear that other networks could follow Disney’s lead and remove their content off of Netflix as well. This announcement acted as a precursor for the Fox acquisition (this acquisition being, a step closer towards Disney’s objective to make their streaming service one that tops Netflix).

So why is Disney even going through the trouble to launch their own service from the bottom-up? This is because, again, Disney is very much cognizant about the changing landscape of media. Entertainment gravitates towards streaming, and while broadcasted television still exists, it is unfortunately dying like the print industry now. Therefore, Disney can’t just continue to do what everyone else is doing by using a source like Netflix, HBO or Hulu to stream their content on. Because Disney is, and wants to continue to be known as the forerunner of the industry, they will not settle for what everyone else is doing.

But this isn’t just about Disney becoming the next Netflix. “From a marketplace standpoint, fundamentally what [the acquisition with 20th Century Fox] does is that it allows Disney to become a bigger player in the cable arena,” said president and co-executive director of national broadcast at Mindshare Jason Maltby—as well as become more accessible and attractive to advertisers. It could “promise one-stop shopping” to marketers and ad buyers, now that Disney has reorganized their ad sales for its entire portfolio, from ABC and the Disney Channel to Freeform and Radio Disney (qtd. in Business Insider)—and with this aquisition, they will only further consolidate their company with additional networks. Also to note, if Disney chooses to dive into the advertising market for their anticipated streaming service, they will have an immense amount of revenue from that alone that Netflix does not have, as a company who is an ad-free service.

And this acquisition 100% aligns with Disney’s trajectory to be the next Netflix. First of all, in terms of success, Disney ranked number one in profitability as one of the six largest studios, with 2016 profits of $2.5 billion. The company currently “owns Lucasfilm, Marvel Studios, and Pixar, [and] already makes almost $1 billion more than its next biggest rival,” Time Warner, profiting $1.7 billion in 2016 (qtd. in The Atlantic). It is also important to note that Disney has not only been around longer than its future competitors (Netflix, Hulu, HBO Go and Amazon Studios), but has had an international presence before them as well. Not to mention Disney provides timeless content that every generation can love.

What Disney is buying is key to understanding their strategy to ensure their streaming company will be a success. They aren’t interested in purchasing 21^st Century Fox’s broadcasting network or Fox News—Disney is only interested in buying Fox’s entertainment assets with an enterprise value of over $60 billion. These assets include Fox movie and television studio, the FX cable network, National Geographic, Star, UK pay-television business Sky, and their share of Hulu. Disney already owns 30% of Hulu. If they acquire Fox’s share, Disney will end up having 60% shares of the network responsible for creating Handmaid’s Tale, which took home the most wins at the 2017 Emmy’s, including in the category, “Best Drama Series.” And on top of Disney becoming Hulu’s majority and potentially full owner, the company also holds 18% of the domestic box office while Fox has 12%, according to Forbes, meaning the House of Mouse could end up with 30% of that sector of entertainment as well.

“It’s all about owning content and pipelines. And if you don’t have both, you might go out of business,”said a marketing professor at the USC Marshall School of Business Gene Del Vecchio (qtd. in Los Angeles Times).

So what else is specifically included in Fox’s entertainment assets? Let’s remember that Disney already owns the Star Wars and Captain America franchises. To put that into numbers, Captain America: Civil War made $1.15 billion in the worldwide box office market, while Rogue One: A Star Wars Story made $1.05 billion in 2016 alone. As part of the deal, Disney would also own Fox’s X-Men, Fantastic Four, and Avatar franchises, giving them control of the entire superhero world (and being able to bring that world to 24 hour, personalized streaming).

“In particular, Fox’s strong television production business would help Disney shore up its own struggling ABC Studios, which recently lost its star producer, Shonda Rhimes, to Netflix,” added The New York Times.

Fox’s logic behind selling to Disney “stems from a growing belief among its senior management that scale in media is of immediate importance and there is not a path to gain that scale in entertainment through acquisition,” according to CNBC. Disney is a company that meets this “scale” that Fox desires, who makes enough money to compete with giants like Netflix and Amazon.

So what’s going to happen to 21^st Century Fox?

Well, their focus will become Fox Sports and Fox News. “[Given] that both news and sports are heavily biased towards live viewing, they are also a good fit for advertising, which again, matches up with traditional TV distribution. What Fox would accomplish with this deal, then, is shedding a huge amount of that detritus,” as stated by stratechery. Basically, Fox is selling off their assets, as well as debt, to Disney, while honing in on what they do so well (news and sports), without having the pressure of competing in the streaming world.

There is concern, though, that this acquisition could be illegal, drawing attention of government regulators like the Federal Communications Commission and going against antitrust laws. Forbes defines the goal of an antitrust law, in terms of acquisitions, as a way to “prevent those that would limit the general public’s ability to make choices and receive products and services at a fair price.” An acquisition between Disney and Fox, two out of six of the biggest studios, would make the House of Mouse even more powerful than it already is. For example, their future impact on the content consumers will consume would be tremendous and potentially, unfair, depending on the company’s beliefs and biases integrated in their stories. Also, the antitrust laws brings up the notion that Disney most likely would have bought the entirety of Fox if it weren’t for legality issues, but one company cannot own two broadcast networks. Regardless, with the assets Disney strategically picked out from Fox, Disney’s already extraordinary portfolio will be bigger than ever.

Another concern is that “[if] a deal closes, marrying the two brands and two very different corporate cultures could take awhile. You have the family-friendly Disney, which doesn’t even do R-rated movies, and Fox, whose movie studio produces unapologetically hard R-rated,” as explained by Deadline. But instead of thinking of this as a challenge, it is again, broadening their portfolio to provide content that anyone and everyone can enjoy.

So if this acquisition does follow through, which seems highly likely as of now, it will be a game changer for the movie industry. First of all, the “Big 6,” six companies that own basically all media, becomes the “Big 5,” eliminating more competition. Basically, “[in] terms of sellers in the marketplace, agents, managers, producers, production companies – they have one less buyer,” said University of Southern California professor Jason Squire (qtd. in Boston Herald). Disney CEO Bob Iger will also likely “stay on past his 2019 retirement date if the entertainment company wins its bid to buy” from Fox, according to The Wall Street Journal. In fact, 21st Century Fox CEO Rupert Murdock has requested that Iger stay if the sale goes through.

Netflix CEO and Founder Reed Hastings has shared sentiments on why he isn’t concerned about how other streaming companies are doing, during a quarter one earnings call this year. He said, in particular about Amazon, that “they’re doing great programming, and they’ll continue to do that, but I’m not sure it will affect us very much. Because the market is just so vast.” Hastings is known to have a “there’s room for everybody” attitude.

It will be interesting to see if Hastings’ room for all attitude will change once Disney is officially in the playing field, or even better, beating them at their own game.

By: Libby Hewitt

As time has gone on, technological advancements have made certain industries obsolete. Many have argued that peer-to-peer payment systems like Venmo may be well on their way to doing this to the banking industry as a whole.

Venmo, a mobile payment service owned by PayPal, came to be in 2009 when two friends at the University of Pennsylvania brainstormed the idea of the app. The two men were in New York City for a weekend when one of them realized he had forgotten his wallet. When they were trying to figure out the logistics of paying one another back, the idea of Venmo was born. The original prototype sent money through a text messaging system, but it has evolved into the platform we know now, where transactions are all done through the Venmo app itself.

In 2016 alone, $147 billion was transferred using peer-to-peer payment systems, which was up from the $100 billion transferred in 2015. These numbers are forecasted to continue growing to as much as $316 billion by 2020, according to an analyst at Aite Group.

To break those numbers down even further, Venmo users alone transferred $17.6 billion of funds to one another through the app in 2016. This was a 135% increase from 2015. While this seems like a massive amount of money being exchanged, Venmo transactions only accounted for 17% of the total peer-to-peer transfers in 2016. In comparison, $28 billion was exchanged on QuickPay, which is JPMorgan Chase’s comparable peer-to-peer payment system. So, while millennials may think that Venmo is the only mobile payment system in existence, some of the big banks in the U.S. are actually still the biggest players in the game on these technologies.

In fact, nineteen of the country’s biggest banks have recently come together to launch Zelle, a new peer-to-peer payment service available through an app. Even though the app has large, recognizable banks backing it like Bank of America, Citigroup, JPMorgan Chase, Wells Fargo and more, Zelle’s Summer 2017 launch did not go as well as anticipated. The following are some of the reviews that can be found on iTunes’s App Store, where the app currently has a 2.6 star (out of 5) rating:

“What a horrendously useless app and payment service!”

“I wish I could give zero stars but it is not offered.”

“If you want your funds to disappear without a trace, count on Zelle.”

“The user experience doesn’t even compare to PayPal or Venmo. There are too many screens/legal hoops to jump through even trying to give someone money.”

Even though Zelle did not have the entrance into the marketplace that it probably hoped for, the app store rating has gone up almost a whole point in the past month. So, maybe the Zelle team is working out some kinks and will eventually have a more seamless user experience.

This lackluster launch of Zelle may say more about the intersection of banking and marketing than the platform itself, however. Senior Vice President of a community bank in Iowa (Clear Lake Bank & Trust), Matt Ritter, believes this is an ongoing issue within the banking industry in introducing new products.

“Banks and their traditional marketing efforts often fail at generating an interest in new technology that is less expensive to offer and transactions that are more efficient to process,” said Ritter.

Even with these challenges upfront compounded with the fact that some people think that Venmo and other payment systems like it may run physical banks off the market, there are some significant ways in which the existence of peer-to-peer payment systems are positive for traditional banks. For example, since Zelle was created by banks, many bankers are optimistic about its invention and actually hope to adopt the system themselves.

President and CEO of Clear Lake Bank & Trust, Mark Hewitt, thinks the innovation of peer-to-peer systems like Venmo are both helping and hurting the banking industry at the same time.

“The proliferation of Venmo has underscored the need to provide a peer-to-peer solution for community banks like ours.  While adding a product like this to our mix was relatively easy, successfully marketing it is much more difficult, especially to users already comfortable with Venmo,” said Hewitt.

As far as Zelle is concerned, he believes that the system is a good way for traditional banks to attempt to compete with these technologies like Venmo.

“Zelle is firmly on our radar, and is likely a product that we will utilize to replace our current peer-to-peer solution.  It’s the product of a mega bank consortium, but is also being made available to community banks via our core software providers,” said Hewitt.

Ritter agrees with Hewitt on this point, adding “Zelle is the banking industry’s best response to date to ensure it is not left out of the payments industry altogether. It will allow banks to compete with Fintech solutions like Venmo.”

Because Zelle is directly connected to users’ bank accounts and is run by the banks themselves, Zelle’s creators are hoping that users will feel more confident using it for larger transactions than they might using Venmo. There is even opportunity to move into more business-to-consumer payment options with Zelle, like insurance companies paying their client’s claims via the app.

Another way the entry of Venmo into the market has been a positive force for traditional banks is that it has motivated them to become competitive in this more technologically advanced space. Banks have been forced to adopt the rapid spread of technology and innovate alongside some of the biggest players in the game to best cater to their customers. The spread of Venmo has also spurred banks to take the peer-to-peer idea beyond just millennials. Of course, millennials are the biggest group currently using Venmo, but banks are hoping to take the momentum that Venmo has created and appeal more to a mainstream audience, directed beyond millennial use.

“We’re hoping that by eventually partnering with Zelle we will be able to target not just our young customer base, but also make it the norm for some of our older customers with smartphones to get on board with,” said Hewitt. “It just makes sense for us to market this easier transactional system to all customers since so many are already so comfortable with the peer-to-peer concept.”

One of the largest complaints from Venmo users that Zelle is hoping to solve is the couple days of delay it takes for money to actually get to users’ bank accounts after participating in a transaction on the app. Zelle allows for more instant transactions because the accounts are directly linked to each user’s bank account, rather than being the third-party platform in the exchange.

Banks are hoping to use this to their advantage and get the message across to users that Zelle may be the fastest option.

“It’s hard for us to break into this space since apps like Venmo have such a head start,” said Hewitt. “Many people don’t realize that many banks already are offering our own peer-to-peer products that have a faster settling rate than Venmo.”

Another thing Venmo is lacking that traditional banks are hoping to perfect is the trust issues that often come with having one’s bank account information on a third-party app. Banks can take that hesitation people have of sharing personal information and make them feel more comfortable doing it on an app that was created or is sponsored by their bank, with whom they have already developed a trusting relationship.

Even though peer-to-peer systems have given banks the push they may have needed to appeal more to today’s customers, there are still things that Venmo is providing that banks worry they won’t be able to keep up with.

The most obvious threat to the banking industry that Venmo presents is the loss of fees and revenue streams that come from regular bank transactions like deposits and transfers.

“Fintech companies engaged in the payments industry are largely unregulated and not required to abide by the same rules as banks, placing banks in a competitive disadvantage,” said Ritter. “Because regulations in the banking industry can often flow down to the consumer, the inconvenience this causes can push consumers into non-banking solutions, like Venmo.”

Because so many people use Venmo for the pure convenience of the transactions, banks are having a hard time reminding customers that they have similar systems already in place that may be even more legitimate when it comes to regulations.

Even so, Venmo was the first to make it possible for a person with a Bank of America account to easily make a transaction with a Chase bank customer. Before Venmo, payments of this type were not convenient or easy. Zelle is attempting to fill this gap for customers transferring between the large banks currently using the app, but for customers at a smaller community bank like Clear Lake Bank and Trust, for example, Zelle may still not be implemented for months or possibly years.

Additionally, bankers are worried about the potential growth of Venmo, as there have been talks of the platform developing its own credit card service. Speculators also think the payment platform may move into more traditional banking roles like giving loans and more. Of course, this has banks worried and wondering how they can compete with such a growing platform and user base.

Another feature Venmo has that a traditional banking experience does not provide is the social aspect. Venmo users are doing more than just transferring money to one another on the app. They are using it as a social site with the ability to like and comment on their friends’ transactions. By requiring a description of what the money transfer is concerning, users are able to have fun with it and connect with their friends, often using emojis as descriptions. In fact, pizza is the number one most used emoji in the description box, followed by the beer emoji. Additionally, users can connect their profile to their Facebook account, and are then able to see their Facebook friends’ payments to one another coming through, like a news feed. While there are various privacy settings that can be activated and the dollar amount of each transactions is kept private to those outside the transaction, the platform is still used socially and as a way to keep up with friends.

“It’s important to remember here that we, as banks, are more interested in the actual deposit, while Venmo is more interested in the customer’s information,” said Hewitt. “That’s where most of the discrepancies lie.”

While the main goal of Venmo may be different than the goal of traditional banks, there is no doubt that each party uses the other to its advantage in the end.

“It is interesting to note that most peer-to-peer solutions still rely on consumer bank accounts, debit cards and credit cards to fund purchases or accounts from which payments are made,” said Ritter. “So, without banks, there really would be no Venmo.”

So, is the existence of Venmo helping or hurting the banking industry, or are the two mutually reliant on one another? It is hard to tell now, but it is clear that peer-to-peer systems are sweeping the nation and are becoming the norm as a payment option. It will be interesting to see how much these systems have advanced in ten or twenty years. Who knows, maybe they will put an end to physical banking structures altogether, or maybe Zelle will catch on and overtake Venmo. We’ll have to stay tuned to find out.

How content might redesign the media industry’s business model

Once upon a time, there were newspapers, radio, television, and movie theaters: well-defined platforms through which content was easily spread and consumed. Distribution and its related issues were not a concern. Then the Internet stepped into this tidy situation, followed by mobile devices, along with the creation of apps that also started working as new kind of platforms. From this point forward, all content, from TV shows to commercials, from music to news, began floating in the complexity of the intricate digital media landscape.

Companies have to deal with hundreds of different platforms, the dominant culture of contents consumed for free, users whose preferences change often, and, last but not least, the giants of Facebook and Google, through which pass all content produced on the web. The question is raised: how can media industries still monetize the content they produce?

With this question in mind, I met with Thomas Jorin, of the Strategy & Innovation department at Havas 18, a research hub of Havas, a French global communication group that provides strategies and solutions to connect companies with their customers. Havas works with large media and entertainment companies around the world such as Walt Disney and Universal Music, that explains why Thomas at Havas 18 is so much involved in studying the ongoing processes around how contents are produced, shared, consumed and monetized.

Working in his LA-based office, Thomas is in charge of conducting research in collaboration with the academic world —most often, the University of Southern California and the University of California, Los Angeles— in order to scout innovative business models that might be applied to Havas’ clients.

Thomas Jorin at Havas 18, Los Angeles

As soon as we started our conversation, he immediately highlighted the biggest issue that the media industry currently struggles with :“The challenging thing is to change your business model because of your content.” Instead, companies are still replicating the same business model for every type of content and platform they handle: for the majority of them, the only thing changing is the type of screen. Thomas stated that, for example, many advertising companies replicate the same type of ad used on TV even on totally new types of platform such as the influencers.

Yet content is not fixed into a single channel anymore. We have to start thinking of digital content as social content, he continued: “By definition, social content is drastically different from, for example, TV content; it has capillarity, it can move from platform to user, from one person to another; it’s shared by consumers, so the value of it is much more defined by the fact that you share the content.” This means an enormous shift in how content value is measured. In fact, the entire media industry is trapped in limbo while it struggles to redesign its business model.

For example, as Thomas said, Universal Music has to constantly deal with how it is paid by Spotify, Apple Music, Amazon, Pandora, and SoundCloud…and news media outlets are not excluded from this difficult scenario either. Indeed, they seem to be the ones suffering most because of the loss of their once-undisputed role of one-and-only content distributors.

Newsrooms have been trying to protect their content with the paywall business model or the subscription model. “I think this is a very old way to think about news, and more in general about content, because it means that content is designed just for one platform or one website and it can’t go out, it can’t be shared. It can’t be viewed differently, it can’t be consumed differently. If you think about today’s most successful media companies, they’re the ones that let their content go out.” Thomas pointed to the example of Tastemade, which produces food videos, that in his opinion is one of the best media companies because it is able to spread its content on every kind of platform, including TV, generating 2.5 million views a month. “If you think about newspapers, that’s exactly what they should do: try to be the best at what they do and let people have access to their content. But in order to do that, you have to be smart in how to monetize every platform.” And here comes the pain-point of the whole question.

“For example, Tatsemade’s CEO said that they generate everyday revenue in fifteen different ways.” Hence, in order to smartly monetize its own content, a company should be open to adopt a different type of business model every time it changes the context where it publishes content: “At some point, you’re gonna to be paid by platforms, at some points you’re gonna be paid by brands, at some points you’re gonna be paid by consumers because you can develop some premium offers… But you need to play with all of that at the same time and find a balance every month, every week, depending on how the market is doing and where it is going. And you can do that if your content is strong enough to attract interest.”

Therefore, the issue of how to smartly monetize each platform is also connected to the audience.

As Thomas stated, the media industry’s problem stems from continuing to use old criteria to look at people, as well as people’s information—that is, data. “As you look at the communication field, everybody has been focusing on male or female, how old you are, what your income is…that’s a very old school approach—especially right now, when you can customize your content for different users.” The old demographic segmentation placed people in a frame that can’t change over time. “A person is going to change every day. We all are different and even myself, I am different from Monday to Sunday, I am different when I am alone or with friends, I will be different in a year…You should not talk to me in the same way.”

For this reason, the audience was the main focus of one of the research projects conducted by Havas 18 in collaboration with the USC Annenberg Innovation Lab, where in 2014 Erin Reilly, Managing Director and Research Fellow, developed a new framework called Leveraging Engagement. Its main purpose was to reveal the right way to look at the audience in order to properly engage with it. The Leveraging Engagement framework was created to discover the types of motivation that, according to different contexts, trigger people’s interest and bring them to engage with a specific content.

Erin told me that for example Walt Disney is going to apply this framework to its show Andi Mak, in order to identify the underlying motivations that bring its fans to watch it. Once Disney has that information, it will be easier to understand how to improve engagement with its audience and how to better monetize the show and other similar content.

Since motivations are driven by situational triggers that reveal why people engage with specific content, the Leveraging Engagement framework  can be applied to many fields, including politics, art, sport, and music. Might it work for the news media as well? Reshaping how news media interact with their audience could help them to develop new ways to earn revenue from their content. As Erin stated, “In any type of media content you can identify the motivation: it’s just knowing the framework and knowing what triggers people’s motivation. If you do that, there are multiple ways to use it to change a company’s  business model.”

The recent news that even the biggest ad-supported news media outlets, such as Buzzfeed and Vice, have not reached the revenues that they estimated, has scared shaken the world of digital newsrooms. It has made clear that a new and solid business model is desperately needed. But the problem, as Erin pointed out, is more complex then we think: “I believe it is hard to shift your business model once you have a company. Newsrooms are established industries with certain business models that have been working forever, and so now we are in a cultural shift, which offers new business models, and yet the people in charge are often afraid of what these new business models could mean. I think they are trying to learn but it’s a big risk to be able to shift to something without having the proof to know that it has been validated and that revenues will come in.”

The crisis that the media industry is facing is leading to the redesign of old paradigms through which companies used to think and value content. Music, movies, articles, video, TV shows…are part of our culture and, in spite of the big changes going on, people will continue to consume them in the future, but media companies must figure out HOW people will do it.

As Erin stated, “It’s a bigger problem than just: let’s do a new business model. It has a lot of moving parts that you have to take into account. And it’s a moving target—it’s not that you can shut down the business and restart; it’s still going while you are trying to change.”

by Mara Pometti