AT&T deal: merger for new me­dia era or a bad re­make?

The Myanmar Times - - International Business -

AN AT&T-Time Warner mega-deal could cre­ate a new kind of me­dia-tech firm in an age where con­sumers get con­tent Net­flix-style, when they want it on any de­vice.

Or it could be a re­make of an­other huge merger 16 years ago that sought to unite the me­dia-en­ter­tain­ment gi­ant with an­other tech sec­tor leader but ended in fail­ure.

The deal un­veiled on Oc­to­ber 22 aims to make AT&T a pow­er­house po­si­tioned for a sec­tor fac­ing ma­jor tech­nol­ogy changes.

The stock-and-cash deal worth US$108.7 bil­lion in­clud­ing debt gives a value of $84.5 bil­lion to Time Warner, which in­cludes the Warner Bros stu­dios in Hol­ly­wood and an ar­ray of TV as­sets such as HBO and CNN, rights to sport­ing events in­clud­ing bas­ket­ball and base­ball and a ma­jor video game pub­lisher.

It would give the big US tele­com and in­ter­net op­er­a­tor “the world’s best premium con­tent with the net­works to de­liver it to ev­ery screen, how­ever cus­tomers want it”, a state­ment from the com­pa­nies said.

But an­a­lysts say the deal faces mul­ti­ple chal­lenges, in­clud­ing win­ning reg­u­la­tory clear­ance for a merger af­fect­ing tens of mil­lions of con­sumers, and suc­cess­fully com­bin­ing two dif­fer­ent kinds of com­pa­nies, one in con­tent and the other in de­liv­ery.

“We’ve seen this movie be­fore and it didn’t end well,” said Re­becca Lieb, an in­de­pen­dent me­dia con­sul­tant and an­a­lyst, re­fer­ring to a 2000 deal merg­ing AOL and Time Warner that was un­wound nine years later.

“It’s dif­fi­cult merg­ing tech­nol­ogy and cre­ativ­ity.”

How­ever, AT&T “didn’t want to sit on the side­lines” while ri­vals such as Com­cast and Ver­i­zon ex­panded to be­come more than sim­ply op­er­a­tors of “pipes” that de­liver in­ter­net and tele­vi­sion, Ms Lieb said.

Com­cast, which be­gan as a ca­ble op­er­a­tor, took a stake in NBCUniver­sal in 2009 and full own­er­ship of the me­dia-en­ter­tain­ment group in 2013 to achieve “ver­ti­cal in­te­gra­tion” of con­tent and de­liv­ery.

“All the op­er­a­tors are try­ing to get con­tent,” Ms Lieb said. “They don’t want to be just de­liv­ery en­ti­ties.”

The sec­tor’s eco­nom­ics have changed as many con­sumers – es­pe­cially younger ones – re­ject the pay TV “bun­dles” of hun­dreds of chan­nels that of­ten cost $100 or more and have long been lu­cra­tive for both de­liv­ery and con­tent op­er­a­tors.

Many view­ers have shifted to video ser­vices such as Net­flix, Hulu and Ama­zon, or to “skinny bun­dles” de­liv­ered via in­ter­net from Sony, Dish Net­work’s Sling TV and other op­er­a­tors. Google, al­ready a sig­nif­i­cant player with YouTube, is also widely be­lieved to be build­ing a new stream­ing ser­vice that could shake up the sec­tor.

Pay-TV op­er­a­tors are see­ing a “slow ero­sion of the core busi­ness”, an­a­lyst Brett Sap­ping­ton at Parks As­so­ciates said.

“Af­ter years of at­tempts to be more than just a ‘dumb pipe,’ pay-TV op­er­a­tors have come to re­alise that a smart, flex­i­ble pipe can sim­i­larly trans­form their busi­nesses,” he said in a re­cent re­search note.

Al­though some 82 per­cent of US house­holds still sub­scribe to pay-TV through ca­ble or satel­lite, those num­bers are slip­ping, ac­cord­ing to Le­icht­man Re­search Group, which es­ti­mates that ma­jor pay-TV groups lost 665,000 in the sec­ond quar­ter alone.

While AT&T hopes to de­liver con­tent such as the Harry Pot­ter fran­chise and TV pro­grams in­clud­ing HBO’s pop­u­lar Game of Thrones to any screen, some see con­sumers get­ting squeezed by the deal.

The merger could open the door to “self-deal­ing and dis­crim­i­na­tion” by a pow­er­ful me­dia and de­liv­ery group, said John Bergmayer of the con­sumer group Pub­lic Knowl­edge, who called for a tough reg­u­la­tory re­view.

A com­bined AT&T could also of­fer ad­van­tages for ad­ver­tis­ers by glean­ing in­sights from view­ing, brows­ing and lo­ca­tion data – but it re­mains to be seen if com­pa­nies can com­bine that data to tar­get mes­sages.

If the deal goes through, it could add pres­sure on other ma­jor play­ers like Dis­ney and 21st Cen­tury Fox to ex­pand their of­fer­ings, an­a­lysts say.

Those firms are look­ing for di­rec­tion as con­sumer habits shift, Richard Green­field of BTIG Re­search said in a blog post.

“If Time Warner and its man­age­ment team were con­fi­dent in the fu­ture of the me­dia sec­tor, par­tic­u­larly the ca­ble net­work in­dus­try, they would not be sell­ing now.” –

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