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Business theory behind AT&T’s $85B mega merger is twisted

Being the biggest has consistent­ly failed media shareholde­rs

- Michael Wolff @MichaelWol­ffNYC Michael@burnrate.com USA TODAY

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.

 ??  ?? MARK LENNIHAN, AP Despite what AT&T says, the company is not really in the informatio­n business.
MARK LENNIHAN, AP Despite what AT&T says, the company is not really in the informatio­n business.
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 ?? GLENN CHAPMAN, AFP/GETTY IMAGES ?? AT&T chief executive Randall Stephenson, left, and Time Warner chief executive Jeffrey Bewkes discuss the deal Tuesday at a live conference in Laguna Beach, Calif.
GLENN CHAPMAN, AFP/GETTY IMAGES AT&T chief executive Randall Stephenson, left, and Time Warner chief executive Jeffrey Bewkes discuss the deal Tuesday at a live conference in Laguna Beach, Calif.

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