Legacy entertainment’s next act

The media sector is currently navigating a period of consolidation driven by the need to achieve the necessary scale amid the decline of linear television and the high costs of streaming. Legacy entertainment conglomerates are increasingly pressured to merge, seeking to combine libraries and infrastructure to compete effectively against capitalization-rich, tech-native platforms that operate with fundamentally different economic incentives.

Potential industry integration highlights a sharp strategic divide between keeping content within exclusive ecosystems versus adopting an “arms dealer” approach, where licensing intellectual property (IP) becomes a key revenue driver. However, regulatory scrutiny remains a potential barrier, possibly complicating the path to finalizing mega-deals. Ultimately, the industry anticipates a future with fewer distinct distributors, which raises concerns about a potential reduction in theatrical output and overall content volume as the remaining players streamline operations and prioritize efficiency.

As a result of this consolidation, ultimately, we see scaled players as the winners in the media ecosystem, while sub-scale companies will struggle to generate steady growth. Sub-scale streamers in particular are still struggling to even turn profitable in that business, impacted by lagging engagement and high churn. While the largest streaming company has reached 20%+ margins, that is still well below the 40–50% peak margins of the cable network business.

In tandem with M&A, we view AI as a potential tool to help fight off secular challenges in the media industry. AI can be used as a powerful tool for efficiency and market expansion rather than a direct replacement for premium human creativity. Notably, in film & TV, AI is already being deployed extensively behind the scenes to improve efficiency and reduce costs. Studios are using AI for previsualization, storyboarding, marketing & analytics, scene extensions and rotoscoping. Further, IP licensing deals for AI can provide new revenue streams and establish a legal framework for copyright protection. Ultimately, AI will help to strip away operation friction and cost, offering an opportunity to see margin improvement or for the savings to be reinvested into higher-quality content and bolder creative risks. These benefits should be balanced against AI-related risks: as high-quality content becomes easier to produce outside the studio system, a surge of low-cost, AI-generated material could erode the value of premium entertainment and intensify competition for audience attention.