Business theory behind AT&T’s $85B mega merger is twisted
Being the biggest has consistently failed media shareholders
AT&T, a communications infrastructure company, now proposes to buy Time Warner, a media company. The business theory here is that AT&T is no longer in the telephone business, it’s in the informationdelivery business, so it ought to own that information. Time Warner’s media products — HBO, CNN, the Turner cable stations — are a valuable part of the information that’s delivered via AT&T’s varied communications routes, including mobile, cable and satellite, and therefore AT&T ought to own Time Warner.
A frequent problem with business theory is that it’s created by people — business people whose priority is not consistently being logical but consistently making money — who are not very good at theory. The other problem is that business theory is often not a theory at all, but hype. It’s a lot of people — buyers, sellers, bankers and other hopeful windfall participants — trying to persuade each other to do the thing that will enrich them most, even if it’s at the other’s cost.
AT&T CEO Randall Stephenson and Time Warner CEO Jeffrey Bewkes have been, in recent days, often pictured together, as though they are allies and true believers in a cause. In fact, Bewkes has long been of the view that what Stephenson wants the world and his shareholders to believe — it should own the content it distributes — is utter hogwash. Much of Bewkes’ CEO career has been about dismantling that idea and offloading Time Warner’s considerable distribution network. But, at $109 a share, Bewkes is a sudden convert to the theory he has long rejected.
Even the key part of this thesis, that AT&T is in the information business, is not really true. Rather, what’s true, is that it is no
longer entirely in the highly regulated telephone industry and is now, faced with massive competition and rapid transformation in the communications business, existentially trying to redefine what business it uniquely is in. “Information” is the valuable part of the communications business, so that’s a good place to start when you are redefining yourself.
But, in fact, AT&T has never informed anyone of anything. It has never been in the business of parsing or evaluating or seeking or shaping information, which is the value in information. AT&T has never been paid to write even one sentence.
Delivering information and creating information are not just different skills, they may be inimical ones. The former must relentlessly seek efficiencies, the latter must tolerate many hopeless inefficiencies.
The job of a media company is to create products that its audience wants and that it will pay for, even when the audience often has little idea what it wants or is willing to pay for. In other words, it’s a widely speculative enterprise.
Because this involves a vast array of unique products — each product, relatively speaking, must be original — the job resists standardization. Indeed, it’s a job that involves taste, emotion, sexual attraction, cultural nuance, visual surprise and quite a bit of walking the fine line between offensiveness and wit. And it’s a job that, contrary to traditional corporate behavior, has to indulge big egos — at every level. Some of the most important people in AT&T’s corporate culture will suddenly be writers. In this new theory of how AT&T morphs from infrastructure giant into information giant — indeed into a pop culture enterprise — engineers will have to lie down with comics.
Of course, theories, or anyway business theories, can put the complicated parts aside. Indeed, part of the business theory that the $85.4 billion deal for Time Warner rests on is that bigness and vastness are in themselves a business solution. If you are the biggest, everybody has to basical- ly do things your way, including other distributors of your content, consumers and even Washington, which might otherwise say you are too big, except that you are big enough to have enough lobbyists to argue the opposite. Pay no attention to the fact that, as mercilessly described in banker Jonathan Knee’s classic book The Curse of the Mogul, bigness theory has consistently failed to make money for media company shareholders.
But the other part of business theory, maybe the most important part, is that it is short term. Nobody is looking for a generational solution. One might not even be looking for a solution at all, but rather a diversion.
That is, when you don’t know what to do, you still have to do something, and that could be pretending you know what to do, while you continue to try to figure out what to do.
This is perhaps why the folks at AT&T believe they can run Time Warner, because their world is also full of fictions and unbelievable plot twists and scenarios that you really have to suspend disbelief in order to accept.