AT&T and Time Warner have jointly announced a deal in which the telecommunications giant will acquire Time Warner for $85.4 billion in cash and stock. The deal would not include Time Warner Cable, which is a subsidiary of Charter, but does cover a number of other Time Warner properties and businesses. Here’s how AT&T describes the value it is getting from the deal:
Each of Time Warner’s three divisions is an industry leader: HBO, which consists of domestic premium pay television and streaming services (HBO Now, HBO Go), as well as international premium & basic pay television and streaming services; Warner Bros. Entertainment, which consists of television, feature film, home video and videogame production and distribution. Warner Bros. film franchises include Harry Potter & DC Comics, and its produced TV series include Big Bang Theory and Gotham; Turner consists of U.S. and international basic cable networks, including TNT, TBS, CNN and Cartoon Network/Adult Swim. Also, Turner has the rights to the NBA, March Madness and MLB. Time Warner also has invested in OTT and digital media properties such as Hulu, Bleacher Report, CNN.com and Fandango.
AT&T is trying to build its own media and service empire here, much as Comcast did when it bought NBC Universal. But it’s not clear that the deal can survive regulatory challenge. Regulators ultimately torpedoed the Time Warner-Comcast merger — at least partly thanks to Comcast’s failure to live up to promises it made during its earlier merger with NBC Universal, but also because of fears the combined company would control more than half of the market for US broadband. Buying Time Warner Inc as opposed to Time Warner Cable won’t give AT&T the same clout in the ISP market. But it would give the single entity a large slice of the premium content creation and distribution pie. AT&T is currently the largest pay-TV provider in the US, thanks to its purchase of Direct TV, and the third-largest provider of Internet service after Comcast and Charter.
Despite AT&T’s claims that consumers would benefit from the merger, there’s precious little reason to think they would. Owning huge swathes of the broadcast and distribution business gives AT&T reason to jack up the prices it charges to rival networks to show content created by AT&T-owned services, and those services won’t be shy about passing the costs on to customers. If you like superhero-themed television and the DC franchises, the CW is the hottest place to see it — and right now, Arrow, The Flash, Legends of Tomorrow, and Supergirl are all available on Netflix.
AT&T has already launched its own Netflix competitor service, dubbed Fullscreen — once it owns Time Warner, it’ll have no reason to continue offering TV to Netflix or other content distribution networks other than its own. Netflix has sped this transition itself, choosing to focus on self-produced content to the ongoing detriment of its own library (Netflix offers much less content today than it did just several years ago). This balkanization of content is destroying the idea of cable-cutting as a cost-saving measure.
Then there’s the question of whether this merger will be of any value to Time Warner. At Recode, Kara Swisher has dug into her past interviews with Time Warner executives, noting that many of the voices now supporting this deal with AT&T were derisively against the disastrous merger of AOL and Time Warner. Those concerns proved either prescient or simply forecast an attitude that prevented Time Warner from seeing any value to AOL’s suggestions and therefore became a self-fulfilling prophecy (Swisher herself thinks Time Warner’s refusal to consider any suggestions of the AOL executives as possibly beneficial was what truly scotched the deal). Either way, the merger of AOL and Time Warner is considered to be the most disastrous corporate merger in history.
This deal will have to be scrutinized by the DOJ and FTC, and could run into regulatory trouble the same way the Comcast-TWC merger did.