With Time Warner deal, AT&T is taking aim at the future
AT&T’s bid for Time Warner is a bold bet on entertainment’s future.
Most media companies are trying to imagine a world without coaxial cables, set-top boxes or bundles of channels. They are predicting television without commercials, schedules or even channel-surfing. They want to offer what you want, when you want it, wherever you want it without interruption.
In that future, it makes sense for a telecommunications giant like AT&T to purchase a television and movie giant like Time Warner to create a vertically integrated megacorporation. Because in the future, only companies on that scale will be able to compete. The big question is whether a company as big and old as Dallas-based AT&T can figure it out.
“The world of distribution and content is converging, and we need to move fast . ... We want to do something truly unique, begin to curate content differently (and) begin to format content differently for these
mobile environments,” AT&T CEO Randall Stephenson said during a conference call discussing the deal. “We want to be at the front of it; we don’t want to be chasing it.”
Consider the madness that is the television business today. A production company pitches a show to a network, which buys it. The network schedules the show on a channel, which it sells to cable and satellite operators, who then sell ads and collect subscriber fees.
To cut out the middleman, networks like HBO, Hulu and Netflix are bypassing cable boxes and satellite antennas by offering subscriptions via the Internet. That brings down prices and boosts profits, which is why AT&T announced it will offer an online video network later this year.
Some producers, meanwhile, are bypassing the networks and posting television shows to YouTube, operating off of digital advertising and donations. The Chronicle is now broadcasting live video on Facebook, providing breaking news and in-depth conversations. The newest social media sensation, YouNow.com, allows anyone with a mobile phone to go live from anywhere they can connect to the internet.
Those connections are becoming faster, cheaper and more ubiquitous, making cable obsolete. Google is stringing optical fiber across major cities and offering speeds 10 times faster than coaxial cable for less money. But, as every employee at almost every media organization is sick of hearing, the future is mobile.
Google, Facebook and a dozen other companies are planning to offer wireless highspeed internet from low-orbiting satellites, high-flying drones or even balloons floating in the stratosphere. Elon Musk’s Space X wants to launch 4,000 satellites to create a network capable of supplying quality internet to the entire planet, including the 43 percent of the population that currently has no way to get online.
Musk may sound crazy, but he is not alone, with a half-dozen competitors pitching plans to spend hundreds of billions on similar fleets of spacecraft. In 50 years, the cellphone tower and cable guy will be things of the past.
AT&T joined the space race when it bought Direc TV last year for $48.5 billion. Direc TV currently uses high orbit satellites, which are too far away to offer internet services, but Direc TV knows how to successfully bounce signals off other people’s satellites for a profit.
In the future, the only businesses left standing will be those that create quality content that people will pay for, and those that deliver that content to a paying audience. But they are not equal. Providing wireless services will almost certainly be a low-margin business, as it is now. But creating the next “Game of Thrones” or “American Idol” can generate huge profits.
Stephenson wants AT&T to do both. Yet his bid has disturbing echoes of internet provider AOL’s failed $350 billion merger with Time Warner in 2000. Time Warner’s chief executive back then, Gerald Levin, predicted that the internet would “create unprecedented and instantaneous access to every form of media.”
Levin was right about the Internet, but AOL Time Warner got the business plan wrong. Google, Apple and Amazon created new business models, while AOL-Time Warner created an online magazine stand. We may know what the future holds, but not every plan survives first contact with reality.
Stephenson also risks repeating a mistake made by newspapers, which also produce content and own distribution. Too many publishers assumed enormous debt while their old business models foundered, which was a lethal combination. AT&T owes creditors $119 billion, the most dollardenominated debt of any non-financial company, and it would add $40 billion more to buy Time Warner.
Americans are instinctively distrustful of big corporations, and politicians will reflect their sentiment. But while a combined AT&T-Time Warner may look like a monopolistic behemoth, that’s the least of its problems.
AT&T’s proposed deal with Time Warner is a wager on a particular vision for the future, and history tells us that’s a very risky bet.