At Allen & Co.’s sun-streaked mogulfest in Sun Valley, Idaho, last week, Discovery chief David Zaslav summed up the quandary for traditional media conglomerates in the face of binge-spending internet disruptors.

“Rupert Murdoch can’t just add $2 billion to $3 billion to what he’s going to spend on content,” Zaslav observed in a sideline chat with reporters.

Of course, Zaslav can’t either. Discovery and the rest of Hollywood’s established players have been scrambling to adapt to the new media order — driven by the steady incursion onto their turf by the likes of Netflix, Amazon, YouTube, Apple and Facebook. Old media’s response: Get bigger with M&A, aiming to build sustainable platforms of the future.

As the media biz heads into the second-quarter 2018 earnings season, the biggest story has been consolidation, led by AT&T’s swallowing of Time Warner in June. The big questions concern who’s next.

That’s created an overhang on media stocks, as investors wait for more shoes to drop. Even so, U.S. media company shares outperformed the S&P 500 during the second quarter, with the sector up 10.1% over the market index for the period, according to an analysis by Wall Street firm Evercore ISI.

Here are some key Q2 trends to watch for in the media and technology landscape.

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Jose Luis Magana/AP/REX/Shutters

M&A: Big Moves, Big Uncertainty

Earnings numbers from media congloms could be a sidelight to bigger strategic questions of how the players will — or won’t — be recombining. “In entertainment, fundamentals across the space remain on the back burner,” BMO Capital Markets analyst Dan Salmon wrote in a preview of the quarter.

Currently, AT&T is the proud owner of WarnerMedia, as it has rechristened Time Warner. The telco’s John Stankey has given marching orders to HBO’s team to aggressively step up their competitive attack in the next year, according to a town-hall talk leaked to media outlets. But the chapter on this deal isn’t completely written: The Justice Department has appealed the decision, and the sliver of a chance that AT&T-Time Warner could possibly be unwound pushed AT&T stock down 1.7%.

Meanwhile, Disney appears to have won the fight for 21st Century Fox’s entertainment assets — now that Comcast has abandoned its Fox chase to focus on its pursuit of Sky. Once the dust settles there, the potential merger of CBS and Viacom — and a legal fight over control of the companies’ future — will take the stage. Other M&A plays are expected in the months ahead.

The rationale for consolidation continues to center both on scale and on “aggregation of content creation and international expansion, as the media model continues to pivot to direct-to-consumer propositions,” Evercore ISI analyst Vijay Jayant wrote in a research note.

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Ahn Young-joon/AP/REX/Shuttersto

Netflix Hits a Speed Bump

Amid the media-sector realignments, Netflix’s debt-fueled growth engine choked in the second quarter.

The streaming giant, the first of the big tech and entertainment companies to release quarterly earnings, missed its subscriber forecast target by about 1 million — sending the historically volatile stock down 14% on July 16. The issue? CEO Reed Hastings’ explanation in the firm’s second-quarter earnings interview was basically that Netflix sometimes sees quarterly “lumpiness” in subscriber trends.

Despite the miss, Netflix ended the quarter with 130.1 million global streaming customers, up 25% year over year, and for the first time generated more revenue abroad than in the U.S. And there’s evidence Netflix has captured a level of mind share that beats traditional TV: It was the No. 1 source cited by U.S. consumers for how they watch television, according to a Cowen & Co. survey conducted in the first half of 2018.

The second-quarter results are a “near-term gut punch,” but Netflix remains well positioned for future growth, GBH Insights analyst Daniel Ives wrote in a note. “As we head into the rest of 2018, we believe Netflix has a number of growth levers that should fuel the company’s next phase of strategic penetration among both U.S. and especially international consumers despite some softness seen in 2Q,” he wrote.

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Courtesy of ESPN

OTT TV: Cutting In on the Dance

Strong uptake of cheaper streaming-TV services will continue to steal subscribers from cable and satellite TV operators, and the over-the-top migration will have a ripple effect on programmers’ second-quarter results for affiliate fees.

So-called virtual MVPDs (multichannel video programming distributors) continue to experience rapid growth, “largely at the expense of traditional pay-TV subscriber bases, creating winners and losers among content companies based on participation in these services’ channel lineups,” according to Evercore ISI’s Jayant. For example: Viacom, a loser here, is absent from both YouTube TV and Hulu’s live-TV packages.

Look for AT&T to provide an update on DirecTV Now and for Dish Network to report Sling TV growth — with both companies’ satellite services in decline. In a sign of growing OTT traction, AT&T is hiking the prices of DirecTV Now’s bundles by $5 each as of July 26, while Sling TV in late June boosted the price of its plan with ESPN and Disney nets by 20%, to $25 monthly. AT&T also rolled out Watch TV, a 31-channel bundle, included with two new unlimited wireless plans (or $15 as a stand-alone option).

Then there’s ESPN+, the $5-per-month direct-to-consumer sports package that debuted in April. Investors will look for Disney to provide guidance on the company’s foray into the OTT arena.

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Internet Giants Deflect Punches, Attract Ads

Google and Facebook are subject to regulatory actions, as governments look to check the power of the two online-ad behemoths as well as address brand-safety concerns among marketers. But for now, nothing is slowing them down.

Evercore ISI’s Anthony DiClemente expressed excitement for Google stock in a preview note last week, citing revenue growth at “massive scale, with sustained ad growth of over 20%.”

Facebook’s stock has rallied to record highs, up around 34% since a trough in March after the Cambridge Analytica scandal. In the second quarter, analysts expect Facebook to post 41%-45% topline growth, with revenue forecasts averaging $13.3 billion.

Amazon, for its part, will continue to take a share of the ad market in Q2, with 37% of respondents to a recent Cowen survey of ad buyers saying they spent more on Amazon ads in the first half of 2018 than they expected. The company’s advertising, Prime subscription and Amazon Web Services businesses will generate $25 billion of operating profit this year, per estimates by Morgan Stanley’s Brian Nowak, enabling Amazon “to invest at record levels while also delivering upside to estimates.”

But according to Pivotal Research Group analyst Brian Wieser, longer term, there will be limits to the growth of digital-media advertising, suggesting some forecasts may be overly optimistic.

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Ron Batzdorff/NBC

Upfronts: Steady as She Goes

Back in the traditional TV world, the ad market remained stable during the 2018 upfront selling season throughout the second quarter, according to Evercore ISI’s Jayant.

The big broadcast and cable players were able to generate both price and volume increases in advertising sales. At the same time, however, networks have lowered their expectations for marketers in the face of ongoing deterioration of TV viewership — with Netflix, for one, obviously peeling away viewers. “TV ratings continued to slide at a mid single-digit pace, but lower audience-delivery guarantees made in last year’s upfronts have meant fewer make-good deliveries in the current TV season,” Jayant wrote.

Cynthia Littleton contributed to this report.