Listen: Next in Tech | Episode 45: The Big Picture, Part 2 – Themes across security and media

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Eric Hanselman

Welcome to Next in Tech, and S&P Global Market Intelligence podcast where the world of emerging tech lives. I'm your host, Eric Hanselman, Principal Research Analyst for the 451 Research arm of S&P Global Market Intelligence. And today, we will be discussing part 2 of The Big Picture report. The Big Picture report is across S&P Global collection of perspectives, really a very broad set of everything from metals and mining, TMT, technology from the 451 side, our finance and insurance groups, really, the whole team coming together with a set of coordinated perspectives.

Today, I've got 2 of the report authors with me to talk about their parts of big picture. Ian Olgeirson from the TMT side and Scott Crawford from 451. Welcome to the podcast, both of you, I guess, in the case of Scott, welcome back.

Scott Crawford

Thank you, Eric. It's good to be here.

Ian Olgeirson

Yes. Thanks, Eric. Appreciate it.

Eric Hanselman

The report -- as I was mentioning, it is -- it goes far and broad and deep in a whole bunch of different areas. It's a set of perspectives we think about, the kinds of things that we're able to pull together. It goes in so many different directions. But there were a set of themes that really spanned the various research areas. One of those that really I think was something that really came to the fore when all of us were working together in this was the merger and acquisition aspects, and it was an interesting thread because it really seemed to move across all of these different disciplines. And I'm curious if you can give our audience perspectives about what M&A activity in your particular area really was all about and some of those perspectives. And Ian, I want to toss it to you first.

Ian Olgeirson

Yes, great. So in the media and telecom space, we saw sort of both the third sale in maturing segments as well as the push to consolidate emerging services with a common theme of sort of a focus on global REIT. So the biggest deal of -- that was announced in 2021 and that should close or is expected to close in 2022 is really a mix of both of those with Warner Brothers and Discovery looking to gain still in both legacy networks and momentum on some of their streaming services.

Eric Hanselman

Well, Scott, on your side, the character of some of the M&A activity is a little different, yes?

Scott Crawford

It was different, but it was also a record year in cybersecurity, which is my focal area here at 451 Research. In fact, it was the single largest year for M&A of all the years that we've been tracking here at 451.

$68 billion total deal value in 2021, which is more than 3x the 2020 total, 2.7% higher than 2019 and nearly 2.5x more than the previous high watermark for total deal value in 2016. So it's been just a better year in tech acquisitions generally, a $1 trillion a year by some accounts, but for cybersecurity, it's just really been huge.

And not least because of some of the high-profile attacks we've seen over the course of last year, in fact, just about exactly a year ago, beginning with the SolarWinds attack. And from there to all the ransomware attacks that we've seen in some of the very high profile Colonial Pipeline, JBS to name 2, hitting the IT supply chain again, not only with Microsoft as a supplier and others, but also [indiscernible] (00:03:46), just the breadth of these and the scale of them have really driven a lot more investment in security, and that's -- we've seen that push through into M&A activity as well, too. So just a huge year in M&A driven not least by a lot of the high-profile events that we've seen.

Eric Hanselman

Well, I was really struck by the difference in what was driving some of that activity in on the being on telecom side, you were identifying that it's really going for scale that organizations were looking to consolidate to be able to get global reach, to be able to expand that base. But Scott, on your side, it seems like it's a lot more, it's functional integration. It was interesting to see those different spans that Ian, I'm guessing on the media side, a lot of these are environments that are already well integrated in terms of a lot of the functional capabilities they've got and really how they approach the market.

Scott Crawford

I think so. And I think that drive for sale really is a function of looking at global markets. So if you look at Warner Brothers and Discovery, for example, the combination will put together combined, they'll have about 31 linear networks. And that helps them with a little bit of scale on advertising and licensing fees. But the combination of HBO Max and Discovery Plus under a single umbrella, and then you introduced CNN Plus news on top of that, and you really have -- you have a combined entity that can use a programming investment that they basically invest in that programming on a single -- sort of a single basis and then spread it out over as big a subscriber basis they can get.

So if they're able to reach that sort of 200 million global streaming customers in a 2- to 3-year time span that we're targeting, they'll be able to monetize that investment in programming across that big base in a way that you simply can't do when you're doing it on a per-subscriber basis and in a way that you simply can't do if you don't cross national boundaries.

Eric Hanselman

And you wind up with probably a much stronger negotiating position when you're looking to acquire content and a set of things that work more positively on that front.

Scott Crawford

I think so, although the negotiating when they're creating a lot of their own content themselves, the negotiating stance doesn't come so much from breadth, but from the power of the back book, right? So that certainly gives them a bigger tech book for which we write back to new content producers.

Eric Hanselman

Oh, good stuff. Well, and Scott talking about big checkbooks. On the security side of things, as you're saying, a lot of significant dollars. But I guess, I'm curious, we've always historically sort of hit on the idea of particular companies that really seem to be more functions and full products. Do you think that's driving some of this? Or are there other aspects in play?

Scott Crawford

There is a lot of complexity in the cybersecurity market generally, both in terms of just the sheer variety and scope and scale of the landscape as well as with the tools themselves. By our count, there's over 3,000 vendors participating in some form or another in the information security, a lot of segments, a lot of fragmentation in the industry.

So there's always been a drive to consolidate functionality, and we're starting to see that in some really distinct ways as you allude. One of the themes that we've seen over the course of this past year was this emphasis on, if you will, segments that offer outside in visibility. What I mean by that is a combination of either the attacker's view of the target, how does the target -- how does an adversary see its potential targets? And can the enterprise leverage that same perspective to gain visibility into their own security posture and resilience. Then the other part of that is visibility into the adversaries themselves, in other words, use into the threat landscape, threat intelligence and so on.

The combination of these, not just threat intelligence, but also things like attack surface management, risk-based vulnerability management, automated penetration testing, reach and attack simulation, continuous security controls validation, complement these trends that we see within the organization around a term that we heard in the industry around extended threat detection and response, which is also the coming together of a number of technologies to consolidate visibility into malicious or potentially malicious activity from the inside.

So complementing greater resilience, greater visibility, better response from the inside with better visibility into how the adversary sees its targets and views into the adversary. These things -- these 3 things are all coming together, and they're really driving up values. So I mean there's some -- I don't think we can even use the term unicorn anymore in the space.

There are so many companies that have either been valued $1 billion or recently are now raising $1 billion or more in just funding rounds alone. So these numbers are really getting very astronomical. And one of the things they have in common is bringing some coherence to this very fragmented view of not only cybersecurity threats and risk and activity, but also of security posture for organizations.

It's just -- it's a huge demand. And given the visibility of some of these more obvious, more high profile, if you will, attack campaigns is a really high priority for organizations around the globe.

Eric Hanselman

So we're breeding herds of unicorns. Is the unicorn aspect the most important part of the report from the Infosec side? Or what -- I guess, what aspects are? Which do you see from that piece?

Scott Crawford

Well, the thing that we keep off of is something that we've been talking about here at 451 for some time, but it seems more evident now than it has ever been before. And that's the idea that risk is truly becoming universal. Now granted, we're looking primarily at technology and technology risk here at 451.

But the risks exposed to businesses, to individuals to society as a whole are becoming more universal arising from risks and exposures in technology. And of course, my point of view being focused on cybersecurity, that's been a pretty central aspect of that risk. But again, to invoke these high-profile attacks and campaigns we've seen over the last year, we've seen attacks against the IT supply chain that take advantage of leverage, basically, attacking or compromising one provider that has penetration into tens, hundreds, if not thousands of relying parties gets the adversary and [ ontary ] (00:10:52) potentially into any number of those relying parties.

Ransomware has had an impact on the physical realm. So in the Colonial Pipeline, JBS attacks, just to name 2, impact on the energy industry, on the food industry. And those are impacts that go beyond technology. So the interconnectedness of society as a whole, which we're now seeing in the supply chain generally around the world, virtually every consumer has felt that in the last few months, but the dependency of all of these aspects of society and technology means that risk is becoming more universal.

The interconnections across society are becoming more universal and exposing various components of society to risk. And so much of it is centered on technology that our view is no longer still packer siloed about this or that aspect of technology. It's the impact universally that these types of threats and exposures are having on society and really the world as a whole.

Eric Hanselman

And it's really that breadth of impact. Interesting. Well, I'm curious, from your perspective, from your side of the port, and there -- it was a lot more in there than just the M&A aspects. What do you see as one of the most important aspects of the TMT side of this equation?

Scott Crawford

Yes. I think if we look at it from a high level, we really saw 2 big directions for 2022. One were sectors that were poised for a rebound from the depths of the pandemic. And the other were sectors that are really going to see a little bit of a slowdown because what they experienced was a pull forward or an acceleration of trends during the pandemic. So a good example of a clear rebound categories at the box office. And as people return to theaters, we expect to see revenue for to bounce back up to around that $10 billion annual revenue around that $10 billion mark.

That's still about 10% sort of what we saw pre-pandemic levels, but way off of what we saw in 2020 when theaters were closed and revenues front to a fraction of that. But the pandemic also accelerated the adoption of some services. So it wasn't all bad things like broadband and streaming services, people needed more connectivity in their households. They wanted more entertainment. And so we really saw an acceleration of those services. So as a result of that, we do see 2022 as, may be relatively modest gains for both of those because they pushed through a lot of new subscriber growth in the previous 2 years.

Eric Hanselman

It sounds like at least hopefully, on some level, we're getting towards the end of a lot of those pandemic stresses. It sounds like both those sectors stand to pick up, hopefully, a lot of that in-person media consumption starts to recover on some meaningful level as things are going forward. Do you see potential downside? You were saying that you see upticks on both sides. I guess for those -- it's not a zero-sum game on both sides of the media picture.

Scott Crawford

I think for broadband, for an example, because there's a finite pie of broadband subscribers and the more you grow those, the less room you have for growth. So the broadband sees itself with a little less headroom for growth. although we do see some upside with the infrastructure bills in the U.S. that should help accelerate a little bit more availability to additional plantings by funding new infrastructure as well as maybe help with some affordability households that previously found a broadband connection out of [ REIT ] (00:14:53) could see some help with subsidies. And so that could help with some of that sort of soften the landing for broadband.

On the online video adoption, there was a lot of demand for entertainment at home, as you mentioned. There was a population that was largely restricted to the count, so they had big appetite for the content and there was plenty to cues from with a host of new major service launches. So as we head into 2022, we don't have as many new services launching.

We have people who hopefully are more freed from their living room to venture out without so many restrictions. So we probably will see a higher churn levels, a little bit more challenges in maintaining that growth. But nonetheless, it's been a gift that we don't expect to go back on. So we do expect to see some modest growth in that segment as well.

Eric Hanselman

Well, it sounds like it's one of those things that we've seen with digitization across technologies in that, once there is that fully digital conversion, we've won digital converts, and we see it Sheryl Kingstone talks about it in customer experience in retail. While there may be a little backslide, the expectation is, in fact, we won a digital convert and a good chunk of that population is going to stick.

Scott Crawford

Yes, I think so. And I think that it really comes down to not whether people sort of stick with digital conversion. But in the case of streaming services, how many services are they going to subscribe through in their households. Maybe in the pandemic, there was a pension for maybe revenue 1 or 2 more than they might normally subscribe to, so you're really looking at that sort of honeymoon phase ending as people become a little bit busier?

Eric Hanselman

Yes. That certainly was the case around our household. Well, we'll see what the future holds on that front. But Scott, for the digitization and some of those aspects that speaks to a whole set of new areas, I think, of concern on the Infosec side. What do you see as some of those forward-looking trends that were reflected in your side of the big picture report?

Scott Crawford

Well, I emphasized a lot already the doubling down on visibility into malicious activity across a number of fronts. Organizations are very concerned about what they're not seeing and what they're not responding to in terms of activity that poses a very significant threat to them. So a lot of investment in that.

There's some reactive response to events over the last couple of years among the areas where we see organizations investing the largest area where they expect to see investment increasing in terms of security spend is data security followed slightly behind by network security, but when it comes to data security, 22% of those we've surveyed this past year said that of those who were increasing spending in 2021, 22% indicate the category is increasing the most. So that's data security specifically, that 22%. So they're responding and reacting to a lot of these attacks. But there's an implicit thrust in there as well, too. I mean, yes, organizations are very concerned about malicious activity.

They're equally concerned about the increasing growth and proliferation of the attack surface, not just at an ever-expanding edge, but an increasing complexity of IT resources at the center of IT, so cloud environments, cloud-delivered resources, just the idea of a landing zone in a cloud environment has become increasingly complex over time.

So getting a handle on complexity, but more importantly, the implicit aspect of that is okay, so we have visibility. We understand what we're up against, better than we used to, how do we respond? How do we improve our resilience. And how do we know that those whom we depend on our partners, our suppliers, our relying parties, what does their resilience look like? That's been a pretty significant aspect for -- not only for organizations, but in area such as corporate credit risk rating.

So this is an area that's a concern to the insurance industry as well. All of these are areas that we're keeping a close watch on here, not only at 451, but at S&P generally. So these are trends, I think, are going to shape cybersecurity in the coming year and frankly, the years beyond because it's got a long way to go to mature.

Eric Hanselman

There were some significant impacts. And as you're identifying, you look at really the watershed moments in some of those attacks and what they've done, it's transformational. Well, I want to thank both of you for the insights into the report. I want to encourage the audience to head towards the reports themselves. The show notes have got a link to the big picture reports. This is part 2. There is so much more. We talked about future work with Chris mart yesterday. We've only scratched the surface on a lot of the content that's here. But Ian and Scott, thank you for being on the podcast.

Ian Olgeirson

Thank you, Eric. Always a pleasure to really enjoy it.

Scott Crawford

Thank you for having me.

Eric Hanselman

And that is it for this episode of Next in Tech. Thank you to our audience for staying with us. We hope that you will join us for our next episode, which is going to be talking with Jordan McKee about digital payments as we start looking at the impact to the holiday season and what everyone's experience regarding that, that is going to be, I think, top of mind for many people. So I hope you'll join us then because there is always something Next in Tech.