• by Dave Morgan , Featured Contributor, July 17, 2014

Mega-mergers have been the talk of the media industry for the past year. It started with the biggest video programming distributors in the U.S., Comcast and Time Warner Cable, then AT&T and DirecTV, and we've had lots of additional dancing among folks like Charter, Dish, Sprint and T-Mobile.

Two consistent rationales have been driving the deals. First, the perceived need to gain scale to support massive anticipated growth of on-demand video usage across multiple digital devices. Second, the perceived need for leverage to push back on content owners and their desire for higher pricing. (Look no further than the recent The Wall Street Journal report that the NBA's new broadcast rights deals could cost a total $15 billion over eight years, double the last NBA deals.)

And yesterday Time Warner, Inc. (the content company, not the cable operator), announced that it had rejected an unsolicited offer from 21st Century Fox to merge, an action that Fox has since confirmed. If combined, the company would be by far the world's largest producer and packager of movies and TV shows.

Will these deals happen? I have no idea, but I do know that mergers beget mergers and that bigger isn't always better.

Mergers cause mergers. Mergers cause mergers not because they are necessarily logical and needed, but because some people believe that size trumps strategy. In the history of media, that has frequently been the case, since distribution advantages typically translated directly into business advantages. We will see more mergers, which will cause more mergers, for a period of time -- certainly if interest rates and debt stay so cheap.

Bigger doesn't mean better. As CEO Jeff Bewkes offered in his public response to the Fox offer, Time Warner believes its strategic plan is superior to Fox's. How you operate your company matters more than scale. Time Warner under Bewkes has been an extraordinary performer, significantly outperforming Fox, particularly if you count in the value of the cable, Internet and magazine spin-offs. In fact, Time Warner has improved by becoming smaller and more focused.

Will this make it harder for small start-ups serving (and disrupting) this consolidating media world? Most likely not. The ability of big companies to innovate and do new deals slows down considerably when they're merging, or worrying that their competitors are merging. Why? When big companies are in mergers, they are easily distracted from their core jobs. Their legal and business development departments go into lockdown, meaning that the development of outside partnerships virtually shuts down. Start-ups, ironically, are usually much better at compartmentalizing and ignoring extraneous market issues not relevant to their mission -- probably because they know better than to think that they matter so much.

So should everyone in the digital media tech space spend a lot of time worrying about these potential mergers? I don't think so. First, you can't really do anything about it, so why worry? Second, this is exactly the time when start-ups and disrupters have unfair advantages. It's actually the best time not to worry, but redouble your focus and efforts. If anything, this is a time for start-ups to hit the accelerator. What do you think ?