Author(s): Raghu Gopal
The media and telecommunication industries are going through what seems like a never-ending transition phase. As the lines blur between the bits and pipes, companies are looking to hedge their bets and prepare themselves for the content consumption behaviour of newer generations.
AT&T's $85.4 billion acquisition bid for the Time Warner media conglomerate has the potential to bring together one of the world's oldest telecom service brands with one of the largest media companies. Time Warner's portfolio of movie and television franchises and characters, including Bugs Bunny and Harry Potter, together with its near 30,000 employees would join AT&T's quarter of a million employees, though likely at arm's length.
AT&T provides post-paid wireless services to almost 80 million people in the US, and has more than 25 million household customers across its U-verse and DirecTV broadcast and Internet services.
Time Warner's assets include the Cartoon Network, CNN, HBO, New Line Cinema, Turner Broadcasting, Warner Bros Animation, and Warner Bros Interactive Entertainment. The company also owns a 10 percent stake in Hulu.
With such content holdings under its corporate umbrella, AT&T would be able to offer subscribers customised streaming bundles, creating packages of content and connectivity for customers who have grown more agnostic to the means, time and place of consumption.
Undoubtedly there's an evolutionary industry tree here with mergers and splits and re-mergers going back decades. Indeed, AT&T is a combination of parts of its earlier self as well as other assets picked up during the years. Time Warner was once combined with AOL, a deal which became a poster child of the initial Internet boom and subsequent bust, but in fairness, it does now reflect a vision. Years later, AOL would be acquired by Verizon, AT&T's main rival in wireless services. (It should be noted that in 2009, Warner Communications spun off its Time Warner Cable unit, which was acquired by Charter Communications earlier in 2016.)
Organic growth is slowing for telecommunication service providers as industry competitors are trading subscribers between themselves while picking up a decreasing number of new users. AT&T and its rivals are each realigning their strategies for a new era of competition, content and consumers.
Companies such as Amazon and Netflix are not tethered by legacy business models of cable TV, providing them with a greater level of flexibility in altering the digital landscape. AT&T, together with rivals Comcast, Charter and Verizon have all recognised this change and are working on vertical and horizontal consolidation at an increasing pace.
But this deal will receive a high level of government scrutiny and could come with some deals of its own. The present-day AT&T is a descendant of an AT&T that was broken up in the early 1980s owing to monopoly concerns. The current environment is vastly different and terms such as Net neutrality and zero rating were not widely used in the last century – if they existed at all. AT&T would have to tread carefully if it were to offer, for example, bundles that would include unlimited wireless access to its own content.
This is a deal that will take time and further negotiation to get finalised. Enthusiasm for a new, content-rich AT&T will have to wait.