USA TODAY International Edition
AT& T BUYING TIME WARNER
$ 85.4 billion deal would boost its access to content
AT& T reached a deal Saturday to buy Time Warner for about $ 85.4 billion, a surprising acquisition that reflects the telecom giant’s desire to amass reputable TV and film content to diversify its huge but mature business of providing Internet access.
In the cash- and- stock deal that was confirmed by both companies late Saturday, AT& T will pay $ 107.50 per share of Time Warner, whose diverse media portfolio includes HBO, CNN, TNT, TBS, Warner Bros., theme parks, Bleacher Report and a 10% stake in streaming service Hulu. The deal, approved by the boards of both companies, is expected to close before the end of 2017.
“This is a perfect match of two companies with complementary strengths who can bring a fresh approach to how the media and communications industry works for customers, content creators, distributors and advertisers,” said Randall Stephenson, AT& T chairman and CEO. “Premium content always wins. It has been true on the big screen, the TV screen and now it’s proving true on the mobile screen.”
The agreement, if approved by regulators, would be one of the largest acquisitions ever in the telecom- media sector. It also lays bare AT& T’s ambition to control sizable market shares in both content and distribution businesses, a prospect that will surely trigger scrutiny from federal regulators and consumer rights advocates.
“Joining forces with AT& T will allow us to innovate even more quickly and create more value for
consumers along with all our distribution and marketing partners,” Time Warner Chairman and CEO Jeff Bewkes said in a statement.
Talks between the companies began in August, when Stephenson, based in Dallas, visited Bewkes in New York and spent several hours discussing the direction of their industries, Bewkes recalled in a conference call Saturday evening. “I’ve been involved in a lot of deals in my career,” Stephenson said. “This one’s unique. It began negotiating on its own very quickly. It was a natural process.”
Stephenson will lead the combined company. Bewkes said has agreed to stay on through the transition period for “a reasonable period of time.”
A year ago, AT& T shocked Wall Street by paying $ 48.5 billion to buy satellite TV provider DirecTV, giving it instant access to nearly all domestic markets for selling its pay- TV service and Internet- TV bundles.
Analysts suggested at the time that AT& T would look to beef up its content offerings — already made attractive by DirecTV’s NFL Sunday Ticket deal — to fully seize the benefits of the acquisition.
DirecTV and AT& T’s other payTV service, U- Verse, provide a level of revenue diversity. But investors have wanted AT& T to look elsewhere for growth, particularly as the market turbulence brought on by streaming technology and “cord- cutting” provides both opportunities and threats.
“They have the pipes and the distribution platform. And the next piece in the value chain is content,” says Roger Entner, an industry analyst and founder of Recon Analytics. “If you have the right content, your platform and pipes are a lot more valuable. And you don’t have to pay ( content companies) all that money.”
Similar concerns drove Verizon to offer $ 4.8 billion for Yahoo’s core businesses, including Yahoo Sports and Yahoo Finance. Verizon also paid $ 4.4 billion to buy AOL a year earlier.
Meanwhile, Comcast continues to prove the benefits of business diversity quarter after quarter with revenues from its NBC Universal unit — including NBC, Telemundo, Universal Pictures and Universal Studios — compensating for declines in cable TV service customers.
AT& T also plans to provide its own video streaming services to compete with Netflix and Amazon in the coming months. It has been signing deals with content providers, and Time Warner’s programming will provide a significant boost in the new services’ show lineup.
AT& T also gets direct access to HBO’s know- how in streaming directly to subscribers. HBO has been operating its subscriptionbased streaming service, HBO Now, since 2014.
Time Warner’s programming could produce marketing advantages. For example, AT& T can entice more Internet customers by offering packages in which streaming HBO or TNT’s basketball games would not count toward their monthly data limit — as it now does for wireless customers with DirecTV’s app.
“You can put AT& T branding on every HBO show,” Entner said. “All the positive halos that come from good content can now be transferred to AT& T.”
Consumer rights advocates questioned how the deal would affect the competitive landscape in a telecom industry being rapidly upended by new technology and consolidation. With Time Warner as its sister company, DirecTV could threaten other content companies if their fees- and- rights negotiations stall, they say.
“AT& T might also make it more expensive or difficult for competitors to DirecTV or to its streaming service to access Time Warner programmer, hoping to drive customers to its own platforms,” wrote John Bergmayer, senior counsel at consumer technology advocacy group Public Knowledge, which has generally opposed industry consolidation.