AT&T agrees $86bn deal to buy Time Warner, more M&As touted

Arvind Hickman
By Arvind Hickman | 24 October 2016

AT&T is one step closer to buying media and entertainment group Time Warner for $86 billion (A$113 billion) in what would be one of the largest media mergers in the world. The deal has been approved by both boards and now awaits regulatory approval.

An AT&T-Time Warner merger would have the largest multichannel TV audience in the US. AT&T already has the largest satellite TV company after acquiring DirecTV last year for $48.5 billion. This merger would consolidate it as the number two player in wireless and cable TV.

The addition of Time Warner adds cable TV channels HBO, Turner Network Television and CNN, as well one of Hollywood's largest film studios, Warner Bros.

The investment in content is vital to attracting new customers, converting more of its current 100 million-plus customers into TV viewers and will allow it to upscale its offering to advertisers.

"We’ll have the world’s best premium content with the networks to deliver it to every screen," AT&T chairman and CEO Randall Stephenson said. "A big customer pain point is paying for content once but not being able to access it on any device, anywhere. Our goal is to solve that. We intend to give customers unmatched choice, quality, value and experiences that will define the future of media and communications.

“With great content, you can build truly differentiated video services, whether it’s traditional TV, OTT or mobile. Our TV, mobile and broadband distribution and direct customer relationships provide unique insights from which we can offer addressable advertising and better tailor content. It’s an integrated approach and we believe it’s the model that wins over time."

The move highlights the growing appetite of non-traditional media players like distributors to build mass media ecosystems.

Telcos view high quality content as an important hook for customers in the highly competitive and challenged mobile and broadband markets. Content also builds the advertising ecosystem, should drive distribution network usage and hit shows like Game of Thrones are valuable properties that can be licensed and distributed abroad. 

Media analysts warn the merger could spark a content arms race from major distributor and technology companies, including Google and Apple. 

Time Warner’s chairman and CEO Jeff Bewkes told reporters after the deal was announced there will be a revolution in the TV world with distributors rapidly acquiring established content companies to build mass media conglomerates. Only a company the size of Disney off limits. 

A merger of this scale is by no means a done deal and will draw close scrutiny over anti-trust issues and general unease over media concentration. Comcast's attempt to acquire Time Warner last year was blocked over such concerns, but this tie-up has fewer conflicts as AT&T and Time Warner don't operate on the same distribution platforms.

Chief among these will be assurances that the merged entity wont impose unreasonable terms and conditions on rival’s to distribute HBO, CNN and Turner Network channels. Conversely, regulators will want to ensure that DirecTV, easily the dominant player in pay TV, doesn't unfairly favour Time Warner content or crowd out alternatives.

Then there's the US presidential election and uncertainty about the next regime's appetite for media consolidation. AT&T is one the largest spenders on political lobbying this year and has publicly endorsed Hillary Clinton. US Republican hopeful Donald Trump said he will block the acquisition in the increasingly unlikely event he is elected. 

The merger, which media analysts predict won't finalise before the end of 2017, is unlikely to have a major impact on Australia because the telco doesn't operate here. Foxtel's Showtime is the official home of HBO in Australia and is expanding its licensing agreement to show more HBO content for longer catch-up periods. 

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