Media companies are watching their world change in two dramatic ways.

For one thing, they’re dealing with the accelerating decline of linear TV, which has supported the industry for decades. Viewing of network and cable TV dropped to its lowest levels ever in 2023 while streaming TV viewing reached a record high, according to Nielsen. But even as streaming viewership rises, companies are grappling with the end of streaming media’s profitability free ride. Wall Street demonstrated that it no longer is satisfied with subscriber growth at all costs. When the number of Netflix’s paying subscribers declined for the first time in a decade in 2022, the pioneering company’s stock fell by more than 50%, triggering an industry-wide shift to focus on profitability with moves such as reeling in booming content costs.

Adding to the challenge for media companies, these two changes are taking place in a relatively tight regulatory environment. Media companies can be high-profile targets for regulators, and the wave of scale consolidation in the industry (Disney-Fox, CBS-Viacom, Warner Bros.-Discovery) has reduced the number of M&A moves on the gameboard.

Some media companies are responding to the pressure to grow profits by divesting noncore assets that won’t be as valuable in a world without historical linear TV cash flows. In France, Groupe M6 sold its portfolio of nonvideo websites in 2023 to focus on transforming its TV and video streaming core, closely following direct competitor Groupe TF1, which embarked on a similar path a year earlier.

Some are entering bold joint ventures or commercial partnerships—at times with former fierce competitors and at times in areas they previously resisted. This was the path taken by ESPN in its deal with Penn National Gaming. ESPN will get $2 billion over 10 years to allow Penn to rebrand its gambling app as ESPN Bet.

More media companies will be turning to different flavors of M&A in 2024 to get out ahead of the evolving industry. We asked eight major media players their expectations for deal activity next year, and all of them said that they would do either the same number of deals or more deals. And whichever ways these companies react—be it by divesting businesses, partnering with competitors, or acquiring for new capabilities—it will take a huge shift in thinking to make the necessary moves and engage in the rigorous planning that will lead them to success. Here’s what the best media companies will do.

Think several steps ahead for divestitures. In such a rapidly evolving industry, success will require companies to have a strong multiyear strategy as well as a clear view of how the industry gameboard is evolving, winners and losers, and which pieces will be the most valuable to which companies. The best players will put themselves in the shoes of potential buyers and consider how their assets could be worth more money to someone else. They’ll understand how different strategic buyers could value and use their assets to grow a core business. They also won’t wait until the last minute to start operating a business slightly differently that might be for sale in the near future. Cost efficiencies that fall to the bottom line before the sale will always be valued higher than potential future opportunities.

Consider ways to expand the pie for all with partnerships. Companies can work together to everyone’s benefit—as opposed to taking a zero-sum approach within the standard negotiation framework. In a big reversal, studios are licensing more of their owned content to Netflix, ending their policy of hoarding one’s content to boost streaming subscriptions. Netflix’s scale and leading position in streaming allows it to pay up for its competitor’s titles. At the same time, the arrangement is a way for competitors to improve profits, and it also serves as a marketing push. For example, Dune (2021) on Netflix will aid Warner Bros. Discovery by boosting awareness (and thus likely the performance) of Dune: Part Two in theaters.

Anticipate the end game of joint ventures. Hulu was a novel creation launched in 2007 as a joint venture by three traditional studios to ensure that Apple wouldn't have the same leverage over movies and TV as it did over the music industry. Hulu became one of the largest streaming services in the US and successfully led the industry in the move to incorporate advertising into the premium streaming model. But now, unwinding it is proving to be challenging. The big lesson learned: Companies engaging in such arrangements need to come to the table with an investment thesis that not only spells out the upfront value but also includes carefully considered plans for untangling and moving on when the joint venture outgrows its usefulness.

Address dis-economies of scale head-on. For years, scale consolidation of traditional media companies meant achieving cost synergies through realizing economies of scale from mature assets such as TV networks and movie studios. Ironically, the companies most successful in achieving these cost benefits will face the opposite challenge if they choose to untangle and carve out targeted assets such as select TV networks. They’ll likely be stuck with stranded costs that are extremely difficult (and in some cases impossible) to eliminate directly—for example, the costs of large technology systems and central corporate functions that are leveraged across the business. The most successful companies will use a separation as a moment to transform their shared services by removing and offsetting stranded costs to emerge margin neutral, or even positive.