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In the last year, Meta, Amazon, Alphabet and
Microsoft have each grown by more than half-a-trillion dollars in terms of
market capitalization and they’ve done so by shedding jobs and supercharging
efficiency with AI, according to investment bankers Luma Partners.
In a new report, Luma also says Big
Tech is poised to remove live sports from linear TV’s grasp and with it hasten
linear’s decline.
“Stock prices getting cut in half in 2022 was a wake-up call for companies to focus internally,” Luma Partners CEO Terence Kawaja said in a presentation of the company’s “State of Digital” report. “Whether big tech or independent Ad Tech and MarTech companies, everyone improved significantly across the board in the back half of 2023 versus the back half of 2022.”
And they did it better than
traditional media companies.
Big Tech and Ad Tech companies have
righted their own ships by ruthlessly cutting jobs (Amazon slashed 16,000;
Microsoft 15,000, Google 10,000 and Meta 20,000 jobs between January 2022 and
March 2024), eliminating non-core programs, and most significantly rolling out
AI products.
“In fact, when everyone else was
talking about AI, Big Tech was going to market with AI products and achieving
massive results with them.”
The deeper pockets of Big Tech are
necessary in order to maintain an edge with AI, says Luma.
Google, Microsoft and Meta alone are
expected to spend close to $400 billion on capital expenditures between
2023-2025. The majority of this is expected to be for infrastructure and
development for AI initiatives.
Luma describes AI as “like a utility”
and a “game for very, very large players,” advising that rival companies in
media, for example, can’t cut their way to growth and sustained innovation.
“While the big tech players are using
their balance sheets to fund AI developments, we believe M&A is going to be
necessary component of strategy for others to reinvigorate growth going
forward.”
The banker also has its eye on
Connected TV, noting that tech giants are all investing heavily in live sports
— which it calls “the Achilles heel of linear TV.”
Big Tech will make its larger wallets
evident in the bid to win live sports rights.
“It’s increasingly becoming a
mismatched fight between tech and media companies. It’s inevitable that when
these [sports] contracts get renewed, they’re going to go to big tech. That
will be the instigator towards an inflected decline of linear.”
Ultimately, media companies need to
successfully transition to streaming and Luma doesn’t think much of their
efforts so far.
“Media companies were in the B2B
business, and they are now forced through streaming to get into the
direct-to-consumer business,” said Conor McKenna, Senior MD at the company.
“They don’t really understand that business, and you can see it from the churn.”
Companies like Comcast, Warner Bros.
Discovery and Disney “are having to reacquire their customers two, three,
sometimes five times per year,” says McKenna. “There are lower ad loads and the
loss of affiliate fees. How have they responded? By re-bundling, wholesaling
and consolidation.”
CTV though carries an opportunity to
reverse those fortunes. CTV, McKenna notes, brings digital attributes to the
big screen “so that we can have all the kinds of capabilities around targeting,
precision, and performance that we do in digital, applied to TV.”
The other opportunity is to
democratize TV spend. The cost of advertising on broadcast TV has historically
excluded all but the largest brands.
“The real opportunity here is to go
to the long tail of smaller and more performant advertisers,” he says.
“That will build a substantially
better business model with more operating leverage just as tech companies have
done with millions of small advertisers, and that we believe will bring a lot
of health and vigor to CTV.”
This will come with new ad formats
beyond the standard 15 and 30-second spots. Innovation around interactive,
shoppable, pause screens, and even product placement with AI “is going to bring
new blood to the CTV ecosystem.”
Luma points to the role that AI will
have in ad-tech and advertising on CTV in particular, suggesting it will have a
positive impact on creative ad forms.
“We believe we’re at an inflection
point with AI that will see more focus on creative,” said Kawaja.
“Software that assists with data,
workflow, and media optimizes for efficiency whereas for creative and content,
it’s software that optimizes for effectiveness,” — and that will drive better
outcomes.
Luma also believes that AI has the
potential to reinvent search and even websites.
“Who needs to put data on a website
that consumers never navigate to if large language models will find and provide
the answer?”
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