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AT&T-Time Warner Deal Is a Strike in the Dark AT&T-Time Warner Deal Is a Shot in the Dark
(about 5 hours later)
The official rationale for AT&T’s $85 billion deal to purchase Time Warner is that in uncertain times, bigger is better.The official rationale for AT&T’s $85 billion deal to purchase Time Warner is that in uncertain times, bigger is better.
AT&T is a telecom company that offers wireless service in a saturated market, while Time Warner is a content company whose primary assets, networks like CNN and HBO, face tougher times in a cord-cutting world. This merger is presented as a solution — a bigger company with more options will inherently be better suited to weather the enormous changes now shattering the TV business. Together, they’ll have more leverage and can build new stuff faster.AT&T is a telecom company that offers wireless service in a saturated market, while Time Warner is a content company whose primary assets, networks like CNN and HBO, face tougher times in a cord-cutting world. This merger is presented as a solution — a bigger company with more options will inherently be better suited to weather the enormous changes now shattering the TV business. Together, they’ll have more leverage and can build new stuff faster.
If all this sounds a bit speculative, that’s because it is. What this deal actually symbolizes is that the future of television is increasingly going to be built on lots of bold, possibly speculative experiments.If all this sounds a bit speculative, that’s because it is. What this deal actually symbolizes is that the future of television is increasingly going to be built on lots of bold, possibly speculative experiments.
In most mergers, people talk up “synergies” — how bringing various parts together creates a more valuable whole. But for regulatory reasons and business ones, the obvious synergies between AT&T and Time Warner are limited.In most mergers, people talk up “synergies” — how bringing various parts together creates a more valuable whole. But for regulatory reasons and business ones, the obvious synergies between AT&T and Time Warner are limited.
For instance, it does not make sense for Time Warner to offer most of its content exclusively to AT&T’s customers. Not only would that destroy its profitability (Comcast’s customers pay a lot for CNN and HBO, so why would Time Warner want to kill that business?), but it would also be out of step with the future. The notion of content tied to specific distribution lines is exactly what consumers are moving away from when they choose services like Netflix over cable bundles.For instance, it does not make sense for Time Warner to offer most of its content exclusively to AT&T’s customers. Not only would that destroy its profitability (Comcast’s customers pay a lot for CNN and HBO, so why would Time Warner want to kill that business?), but it would also be out of step with the future. The notion of content tied to specific distribution lines is exactly what consumers are moving away from when they choose services like Netflix over cable bundles.
Instead this megadeal is best seen as a Hail Mary pass. It’s a way to do something, anything, to get some grip on a rapidly changing future. The basic story underlying this merger is that the great delivery and content business for television is cracking up. Thanks to the internet and the smartphone, the way we have paid for TV, the kinds of programming we get and the devices we watch it on are all undergoing transformational change.Instead this megadeal is best seen as a Hail Mary pass. It’s a way to do something, anything, to get some grip on a rapidly changing future. The basic story underlying this merger is that the great delivery and content business for television is cracking up. Thanks to the internet and the smartphone, the way we have paid for TV, the kinds of programming we get and the devices we watch it on are all undergoing transformational change.
We are witnessing the emergence of a new order in the TV business. In five or 10 years’ time, that order may become clear. There’s a good chance it will involve some current players — Comcast, Disney and a merged AT&T and Time Warner will all play a role in the entertainment business of tomorrow. But these behemoths’ size and influence will almost certainly be diminished by new tech-powered players, whose pocketbooks and ambitions seem limitless — companies like Google, Facebook, Amazon, Apple, Netflix and possibly Twitter and Snap.We are witnessing the emergence of a new order in the TV business. In five or 10 years’ time, that order may become clear. There’s a good chance it will involve some current players — Comcast, Disney and a merged AT&T and Time Warner will all play a role in the entertainment business of tomorrow. But these behemoths’ size and influence will almost certainly be diminished by new tech-powered players, whose pocketbooks and ambitions seem limitless — companies like Google, Facebook, Amazon, Apple, Netflix and possibly Twitter and Snap.
What’s scary for the incumbents is that at the moment, much of the future seems up for grabs, because consumer behavior is neither settled nor predictable. Even viewership of N.F.L. games is down this season. Down!What’s scary for the incumbents is that at the moment, much of the future seems up for grabs, because consumer behavior is neither settled nor predictable. Even viewership of N.F.L. games is down this season. Down!
So among the questions now plaguing the industry: Do people still want to pay for TV, and if so, how much? Do people want to watch live stuff, or scripted stuff, or do they instead want to watch whatever is on their Facebook feed? Which kind of company is the most valuable player in the future of the entertainment business?So among the questions now plaguing the industry: Do people still want to pay for TV, and if so, how much? Do people want to watch live stuff, or scripted stuff, or do they instead want to watch whatever is on their Facebook feed? Which kind of company is the most valuable player in the future of the entertainment business?
That is where all the experimenting comes in. William Goldman, the screenwriter, once said that in Hollywood, “nobody knows anything.” This applies well to the entertainment business of today, and the AT&T and Time Warner deal is perhaps the watershed example: Every move is a guess, and if you are lucky, an educated one.That is where all the experimenting comes in. William Goldman, the screenwriter, once said that in Hollywood, “nobody knows anything.” This applies well to the entertainment business of today, and the AT&T and Time Warner deal is perhaps the watershed example: Every move is a guess, and if you are lucky, an educated one.
“I think we’re all trying to figure this out — how technology and the consumer is going to change, and who are the winners and losers in this future,” said Walter Piecyk, who studies the telecommunications industry at the research firm BTIG.“I think we’re all trying to figure this out — how technology and the consumer is going to change, and who are the winners and losers in this future,” said Walter Piecyk, who studies the telecommunications industry at the research firm BTIG.
The best argument for the deal, Mr. Piecyk said, is that it diversifies AT&T’s offerings — now a single company combines content and distribution, rather than just one or the other. When you face an uncertain future, diversity isn’t a bad weapon. If it turns out that in the future, content becomes more valuable than distribution, the new AT&T will have that; if the opposite happens, it’s covered there, too.The best argument for the deal, Mr. Piecyk said, is that it diversifies AT&T’s offerings — now a single company combines content and distribution, rather than just one or the other. When you face an uncertain future, diversity isn’t a bad weapon. If it turns out that in the future, content becomes more valuable than distribution, the new AT&T will have that; if the opposite happens, it’s covered there, too.
In conference calls with reporters and investors over the weekend, Randall Stephenson and Jeffrey Bewkes, the chairmen and chief executives of AT&T and Time Warner, added another dimension to this argument: Bigger, they said, is faster.In conference calls with reporters and investors over the weekend, Randall Stephenson and Jeffrey Bewkes, the chairmen and chief executives of AT&T and Time Warner, added another dimension to this argument: Bigger, they said, is faster.
The future of TV, they argued, will depend on a lot of new ideas that are tested and deployed very quickly. These might include new business models for paying for shows, new ways to distribute and market that content, and new technologies and industrywide standards to make sure it all works.The future of TV, they argued, will depend on a lot of new ideas that are tested and deployed very quickly. These might include new business models for paying for shows, new ways to distribute and market that content, and new technologies and industrywide standards to make sure it all works.
But today, those kinds of innovations take a long time to develop, in part because the industry is so fragmented, the companies argued. Consider TV Everywhere, the standard that allows you to sign on to your cable company’s account so that you can watch, say, CNN or HBO on your smartphone. Mr. Bewkes pointed out Time Warner and others in the industry had been trying to pull off such a system for years, but that it took forever because other cable and content companies “kept it hostage to individual negotiations and step-by-step contract renewals.”But today, those kinds of innovations take a long time to develop, in part because the industry is so fragmented, the companies argued. Consider TV Everywhere, the standard that allows you to sign on to your cable company’s account so that you can watch, say, CNN or HBO on your smartphone. Mr. Bewkes pointed out Time Warner and others in the industry had been trying to pull off such a system for years, but that it took forever because other cable and content companies “kept it hostage to individual negotiations and step-by-step contract renewals.”
Fragmentation led to delays, and delays contribute to consumer dissatisfaction — but in a world in which Time Warner and AT&T worked together, new products would come along faster, which would in turn push new ideas from competitors, Mr. Bewkes said.Fragmentation led to delays, and delays contribute to consumer dissatisfaction — but in a world in which Time Warner and AT&T worked together, new products would come along faster, which would in turn push new ideas from competitors, Mr. Bewkes said.
Many analysts I spoke to found this explanation hard to swallow. They said a lot of these potential products and services could be created from licensing deals. A merger might actually slow down industrywide collaborations, they argued, because it sets up a new giant that others in the industry may not want to work with.Many analysts I spoke to found this explanation hard to swallow. They said a lot of these potential products and services could be created from licensing deals. A merger might actually slow down industrywide collaborations, they argued, because it sets up a new giant that others in the industry may not want to work with.
“This appears to be about empire sustenance rather than economic efficiency,” said Brian Wieser, an analyst at the Pivotal Research Group.“This appears to be about empire sustenance rather than economic efficiency,” said Brian Wieser, an analyst at the Pivotal Research Group.
Craig Moffett, of MoffettNathanson, was blunter: “AT&T faces the twin pressures of a huge debt load and huge dividend that consumes the vast majority of their cash,” he wrote in an email. “It is clear that they had to do SOMETHING.”Craig Moffett, of MoffettNathanson, was blunter: “AT&T faces the twin pressures of a huge debt load and huge dividend that consumes the vast majority of their cash,” he wrote in an email. “It is clear that they had to do SOMETHING.”
Big media mergers are always risky. They rarely work out. But it’s striking how much more things are uncertain today than in the past. So even if AT&T and Time Warner together do not make much obvious sense, well, it’s something.Big media mergers are always risky. They rarely work out. But it’s striking how much more things are uncertain today than in the past. So even if AT&T and Time Warner together do not make much obvious sense, well, it’s something.