AT&T’s $85.4bn deal for Time Warner: A new bet on syn­ergy

Kuwait Times - - TECHNOLOGY -

NEW YORK: AT&T’s $85.4 bil­lion pur­chase of Time Warner rep­re­sents a new bet on syn­ergy be­tween com­pa­nies that dis­trib­ute in­for­ma­tion and en­ter­tain­ment to con­sumers and those that pro­duce it. The ac­qui­si­tion would com­bine a tele­com gi­ant that owns a lead­ing cell­phone busi­ness, DirecTV and an internet ser­vice with the com­pany be­hind HBO, CNN, and some of the world’s most pop­u­lar en­ter­tain­ment, in­clud­ing “Game of Thrones,” the “Harry Pot­ter” fran­chise and pro­fes­sional bas­ket­ball. It’s the lat­est big me­dia ac­qui­si­tion by a ma­jor ca­ble or phone com­pany such as Com­cast’s 2011 pur­chase of NBC Univer­sal - and aimed at shoring up busi­nesses up­ended by the internet.

Reg­u­la­tors would have to sign off on the deal, no cer­tain thing. The prospect of an­other me­dia gi­ant on the hori­zon has al­ready drawn fire on the campaign trail. Speak­ing in Get­tys­burg, Penn­syl­va­nia, GOP pres­i­den­tial nom­i­nee Don­ald Trump vowed to kill it if elected be­cause it con­cen­trates too much “power in the hands of too few.” Sen. Al Franken, a Min­nesota Demo­crat, said the deal “raises some im­me­di­ate flags about con­sol­i­da­tion in the me­dia mar­ket” and said he would press for more in­for­ma­tion on how the deal will af­fect con­sumers.

ME­DIA MERGER MANIA

Net­work-own­ing com­pa­nies like AT&T are in­vest­ing in me­dia to find new rev­enue sources and en­sure they don’t get rel­e­gated to be­ing just “dumb pipes.” In ad­di­tion to the Com­cast-NBC Univer­sal deal, Ver­i­zon bought AOL last year and has now pro­posed a deal for Ya­hoo to build a dig­i­tal-ad busi­ness.

After its at­tempt to buy wire­less com­peti­tor T-Mo­bile was scrapped in 2011 fol­low­ing op­po­si­tion from reg­u­la­tors, AT&T dou­bled down on television by pur­chas­ing satel­liteTV com­pany DirecTV for $48.5 bil- lion. AT&T is ex­pected to of­fer a stream­ing TV pack­age, DirecTV Now, by the end of the year, aimed at peo­ple who have dropped their ca­ble sub­scrip­tions or never had one. The ven­er­a­ble phone com­pany has to con­tend with slow­ing growth in wire­less ser­vices, given that most Amer­i­cans al­ready have smart­phones. And it faces new com­peti­tors for that busi­ness from ca­ble com­pa­nies. Com­cast plans to launch a cell­phone ser­vice for its cus­tomers next year.

AT&T CEO Ran­dall Stephen­son, who will run the com­bined com­pany, said on a con­fer­ence call that the deal will al­low AT&T to of­fer unique ser­vices, par­tic­u­larly on mo­bile, though he didn’t pro­vide de­tails. Jeff Bewkes, the Time Warner CEO who will stay with the com­pany for an un­de­fined tran­si­tion pe­riod, added that more money will help fund production of ad­di­tional pro­gram­ming and films.

Both men stressed that it will be eas­ier to “in­no­vate” when the com­pa­nies are joined and don’t have to ne­go­ti­ate us­age rights at arm’s length. (AT&T, of course, will still have to strike such deals with en­ter­tain­ment con­glom­er­ates it doesn’t own.) The com­bined com­pany is also likely to lean more heav­ily on ad­ver­tise­ments tar­geted at in­di­vid­u­als based on their in­ter­ests and per­sonal de­tails. Buy­ing Time Warner may be “a good de­fen­sive move” against Com­cast as the ca­ble gi­ant con­tin­ues stretch­ing into new busi­nesses, New Street Re­search an­a­lyst Jonathan Chap­lin said in a Fri­day note. Com­cast also bought movie stu­dio DreamWorks An­i­ma­tion in Au­gust.

Even if the AT&T deal over­comes op­po­si­tion in Wash­ing­ton, it’s pos­si­ble that reg­u­la­tors might sad­dle the com­bined com­pany with so many con­di­tions that the deal no longer makes sense.

“It’s not hard to imag­ine what you can do on pa­per. They would keep HBO ex­clu­sive for only DirecTV sub­scribers, or only make TNT or TBS avail­able over AT&T Wire­less,” said an­a­lyst Craig Mof­fett of re­search firm Mof­fet­tNathanson, re­fer­ring to Time Warner net­works. “But as a prac­ti­cal mat­ter, those kinds of strate­gies are ex­pressly pro­hib­ited by the FCC and an­titrust law.” Then there is the $85 bil­lion that AT&T is hand­ing over to Time Warner, al­most 40 per­cent more than in­vestors thought the com­pany was worth a week ago. “Count me as a skep­tic that there is real value to be cre­ated,” Mof­fett said. Amy Yong, an an­a­lyst at Mac­quarie Cap­i­tal, re­called many cel­e­brated me­dia deals of the past have turned into duds - in par­tic­u­lar, Time Warner’s dis­as­trous ac­qui­si­tion by AOL in 2001. “If you look at his­tory, it’s still an un­proven” that big deals make sense, she said. AT&T, she noted, was pay­ing “a huge price.” Still, Yong­said that AT&Tan dot her phone com­pa­nies feel they have to act be­cause the threats to their busi­ness seem to be com­ing from ev­ery di­rec­tion. “At the end of the day, th­ese com­pa­nies are try­ing to com­pete with Google and Facebook and Ama­zon, not just tra­di­tional com­peti­tors,” she said. “You see Google piv­ot­ing into wire­less.”

John Bergmayer of the pub­licin­ter­est group Pub­lic Knowl­edge, which of­ten crit­i­cizes me­dia con­sol­i­da­tion, warned of harm to con­sumers from the AT&T deal. He said, for ex­am­ple, AT&T might let wire­less cus­tomers watch TV and movies from Time Warner with­out count­ing it against their data caps, which would make video from other providers less at­trac­tive.

MAR­KET MOVES

Shares of AT&T, as is typ­i­cal of ac­quir­ers in large deals, fell on re­ports of a deal in the works on Fri­day, end­ing the day down 3 per­cent. But the prospect of more me­dia ac­qui­si­tions sent sev­eral stocks soar­ing Fri­day. Net­flix and Dis­cov­ery Com­mu­ni­ca­tions each jumped more than 3 per­cent. Time Warner rose nearly 8 per­cent on Fri­day, and is now up 38 per­cent since the start of the year. The com­pany has moved ag­gres­sively to counter the threat that slid­ing ca­ble sub­scrip­tions poses to its busi­ness. —AP

NEW YORK: Pedes­tri­ans walk by an en­trance to the Time Warner Cen­ter in New York. On Satur­day, sev­eral re­ports cit­ing un­named sources said AT&T is in ad­vanced talks to buy Time Warner, owner of the Warner Bros. movie stu­dio as well as HBO and CNN. — AP

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