WHY AT&T’S PLAY FOR TIME WARNER MAKES SENSE
To get a sense of why AT&T wants to buy Time Warner for $85 billion (and why the deal makes sense), consider how your screen-watching habits have changed over the past decade: You’ve progressed from staring at the television to consuming all kinds of media wherever you go.
Lots of people still watch cable TV, but there’s something quaintly 20th century about the experience of sitting on the couch in front of a 40-inch set. There are so many other ways to consume information and entertainment today. Instead of devoting time to TV, viewers spend hours with their smartphones or tablets scrolling through Facebook, watching YouTube videos or streaming a Netflix series.
This is all part of the tech convergence that’s breaking down barriers between TV, the internet and mobile phones, providing so many more choices for consumers. Once, TV stations and networks dominated the landscape because they controlled the transmission signals. Then came cable and the proliferation of channels. Now broadband internet delivers its own pipeline of programming, which is tempting consumers to cut the cable cord. A savvy viewer can put together a full palette of digital programming choices, from sports to HBO, without paying a monthly cable bill.
The next frontier is 5G cell service, which likely will be as fast as broadband internet and make the smartphone even more of a viewing hub. AT&T sees an opportunity to diversify beyond its wireless phone business and lead the way in convergence by acquiring an entertainment industry giant. Time Warner’s stable includes the Warner Bros. film and TV studio plus HBO, CNN and TNT.
Mega-mergers of this sort typically undergo government scrutiny to make sure they don’t violate antitrust regulations intended to protect consumers. Among the concerns: Will a new conglomerate be a monopoly capable of sticking consumers with higher prices? (Or, conversely, will a streamlined, more efficient operation charge consumers less going forward?) The regulators should do their due diligence here, but we don’t see any reason for the government to tell these companies, their shareholders or the public whose telecom strategy is worth pursuing. No one can predict the future of technology, least of all the bureaucrats.
AT&T’s deal for Time Warner, rumored last week and announced over the weekend, isn’t an attempt to squeeze out competitors and dominate pricing because these two companies are not in the same industry: One operates a telecommunications pipeline and the other fills pipelines with content. The closest precedent for this transaction was Comcast’s 2011 purchase of NBCUniversal.
There are reasons for regulators to attach conditions to a transaction of this type. If, for example, AT&T refused to make HBO available to competitors such as Verizon, that would be anti-competitive. But AT&T, which also owns satellite-based DirecTV, already has said it would be dumb to restrict Time Warner to its own screens. That’s because the combined company stands to make a lot of money distributing HBO, CNN and all its other fare as widely as possible — via Verizon and other, well, content delivery pipelines.
However, there would be nothing to stop AT&T from using the creative minds at Time Warner to build new programming channels that would be exclusive to its subscribers. A few years ago people shopped at Amazon but never considered watching Amazon TV. Why not? Because human imaginations and market forces hadn’t yet come together to start it. Now Amazon is home to some of the best shows on what we used to call “television.”
We won’t handicap the success of AT&T’s deal for Time Warner, but analysts don’t think it will be the last of its type. Apple was said to be interested in Time Warner. There are other permutations no one yet can anticipate because technology is changing so rapidly, blurring all lines.
That’s reason enough to anticipate the AT&T deal, not dread it: Trends in the digital world are moving in the direction of giving more options to consumers, not fewer. Good.