Media landscape in tumult with deal talk rife

The media sector has had its most tumultuous week in recent memory.

AT&T’s attempt to create a television, film and mobile communications behemoth with the $85.4-billion purchase of media group Time Warner hangs in the balance: US regulators have asked it to sell off either some of Time Warner’s cable networks, including news channel CNN, or DirecTV, AT&T’s satellite broadcaster, if it wants to win approval for the deal.

That revelation came just days after it emerged that Walt Disney had held talks with Rupert Murdoch’s 21st Century Fox about buying the latter’s movie studio, cable channels and international business — including its 39% stake in Sky, the pan-European broadcaster.

Barclays analysts summed up the confusion that has shaken investors. “We are at a loss in trying to rationalize some of the news flow,” they wrote in a research note.

Technological upheaval, sweeping changes in audience behavior and the global rise of on- demand streaming service Netflix, account for some of the turbulence. A US president who frequently broadcasts his loathing of news organizations including CNN accounts for the rest.

The combination adds up to what could become a radical reshaping of the media landscape as content owners, distributors and disruptive technology companies jockey for control. Analysts and investors are talking about all kinds of combinations, some as radical as Apple bidding for Disney, and others as familiar as the Murdoch family taking its second run in three years at buying Time Warner.

Media advisers say much hangs on the outcome of the increasingly public battle between AT&T and the US Department of Justice (DoJ), a key Washington competition watchdog.

“Everyone is talking to everyone at the moment,” says one of Wall Street’s most prolific mergers and acquisitions bankers. “If the DoJ goes hard on AT&T, we are likely to see some serious ripple effects . . . Time Warner and many of its assets are of interest to many players.”

Randall Stephenson, AT&T’s chief executive, says he is prepared to defend the takeover in court if a settlement cannot be reached with regulators. “Since the day we announced this, we’ve been preparing to litigate this deal,” he told a conference in New York on Thursday. He added that he had no intention of selling the news channel.

“If it goes to the court I believe AT&T will win — but it could take a year,” says Michael Kassan, chief executive of MediaLink, the media strategy group that has advised both AT&T and Time Warner. “Time matters. Who knows what that does to the deal?”

AT&T has said that if they take the DoJ to court, they would push for an expedited hearing.

The reported willingness of the Murdochs to entertain the sale of Sky and other assets to Disney has also reset investors’ expectations and assumptions. James Murdoch, Fox’s chief executive and Rupert’s son, has pursued full control of Sky for close to a decade. The prospect of him instead selling it to another company bewildered longtime observers.

But the calculations could change if the AT&T-Time Warner deal falls apart. Rupert Murdoch bid $80 billion for Time Warner three years ago and was rejected. If it ends up back on the market, he would be expected to have another crack. “If Trump turns down AT&T, Rupert could come back,” says one person who knows the mogul.

Fox executives declined to discuss the talks with Disney on the company’s earnings call this week. But James Murdoch and his brother Mr. Lachlan, Fox’s coexecutive chairman, emphasized their commitment to expanding the business.

“Historically, we’ve always been asset builders,” Mr. Lachlan said. “Whether it’s Sky or Star or Fox News or the Fox network, we operate these businesses to build them and to grow and we will continue to do so.”

Barclays analysts raised the prospect that Disney could also join the race to buy Time Warner if it becomes available. Disney has been bolstering its content and intellectual property through acquisitions such as Lucasfilm, Marvel Studios and Pixar and might well be tempted by Time Warner’s assets, which include the Warner Brothers movie studio, Turner cable channels and HBO, the premium cable network.

The Barclays analysts, however, added a regulatory caveat.

If the DoJ rejects a so-called vertical deal such AT&T and Time Warner, which would have combined two companies that operate at separate stages of the production and distribution chain with no overlapping assets, would it clear one that combined companies in the same business?

“If a vertical deal is blocked by the DoJ, we don’t see how management teams get comfortable pitching a horizontal deal to the DoJ,” they wrote.