Merger mania in entertainment may be cooling off in the U.S. In the first quarter, the value of merger and acquisition deals in the U.S. entertainment, media, and communications sectors totaled $10.4 billion, the lowest value since before 2014.

That’s the conclusion from PwC’s US Entertainment, Media & Communications (EMC) Deal Insights report. It also noted a slowdown from $12.3 billion in deals in the fourth quarter of 2015. However, the volume of deals, at 183 in Q1, was up 6 percent from the previous fourth quarter of 2015.

In Q1, film and content deals provided the lion’s share of the M&A value, whereas advertising and marketing sustained overall volume. PwC recorded no major deals in the game industry during the first quarter, as you can see in the chart at the bottom.

Advertising and marketing also continued to be the most active subsector for foreign investment, along with a major spike in inbound activity within the film and content sector, PwC said. While  “megadeals” (with a value greater than $1 billion) were scarce, PwC saw a notable pickup in large and middle-market deals in Q1. Two megadeals accounted for 51 percent ($5.3 billion) of the total Q1 amount. The decline in megadeal amounts started in the second half of 2015.

In the two big deals, Dalian Wanda bought a majority stake in Legendary Pictures for an undisclosed amount, and Verizon Communications acquired XO Communications.

But PwC said it remains optimistic that there will be an uptick in activity in coming quarters, with recent regulatory clearance for previously announced cable megadeals and the overall macroeconomic environment stabilizing after a volatile start in 2016.

Deals in the sector are being driven by industry innovation in the highly dynamic digital ecosystem. Changing consumer demands coupled with rapid technological advancement make it essential for deal makers to seek targets that help deliver the connected experiences consumers want.

In film and content, deals were led by film production and distribution studio deals. Chinese and Qatari companies increased their acquisitions, and PwC expects more foreign buyers to come forward in the coming quarters. In publishing, deal volume fell for the second consecutive quarter, with 17 announced deals versus 28 in the fourth quarter of 2015. Newspaper and magazine consolidation came to a halt, with only 3 deals this quarter compared to 15 in the previous year.

Deal volumes for Internet and information services increased slightly in Q1, with 41 deals, versus 39 in Q4 2015. Deal activity continued to be dominated by Internet media (lifestyle and entertainment content properties) targeting consumers rather than business-to-business users.

In advertising and marketing, deal volumes rebounded from 45 in Q4 2015 to 58 in Q1 2016. Data, social, and mobile capabilities continue to play a significant role in advertising and marketing M&A, with 45 percent of the deal share in Q1 2016. Outdoor advertising deals also started out the quarter strongly, with three deals in Q1 2016. PwC expects ad tech to grow more investment and M&A activity.

A sector breakdown of entertainment deals in Q1.

Above: A sector breakdown of entertainment deals in Q1.

Image Credit: PwC