Tuesday 20 March 2018

AT&T to buy entertainment giant Time Warner for £70 billion

The Time Warner Centre in New York (AP)
The Time Warner Centre in New York (AP)

AT&T is buying Time Warner, owner of the Warner Bros movie studio as well as HBO and CNN, for 85.4 billion dollars (£70bn), in a deal that could shake up the media landscape.

The merger combines a telecom giant that owns a leading mobile phone business, DirecTV and internet service with the company behind some of the world's most popular entertainment.

It is the latest tie-up between the owners of digital distribution networks and entertainment and news providers, aimed at shoring up businesses upended by the internet, including Game Of Thrones, the Harry Potter franchise and professional basketball.

It would be the latest tie-up between the owners of digital distribution networks and entertainment and news providers, all aimed at shoring up businesses upended by the internet.

The deal would make Time Warner the target of the two largest media-company acquisitions on record, according to Dealogic. The highest was AOL's disastrous 94 billion-dollar (£77bn) acquisition of Time Warner at the end of the dot-com boom.

Regulators will, however, have to sign off on the deal, which is no certain thing.

The prospect of another media giant on the horizon has already drawn fire on the US election campaign trail.

Speaking in Gettysburg, Pennsylvania, Republican presidential nominee Donald Trump vowed to kill it if elected because it concentrated too much "power in the hands of too few".

And Senator Al Franken, a Minnesota Democrat, said the deal "raises some immediate flags about consolidation in the media market", adding that he would press for more information on how it would affect consumers.

Shares of AT&T, as is typical of acquirers in large deals, fell amid reports of a deal in the works on Friday, ending the day down 3%.

Time Warner rose nearly 8% on Friday and is now up 38% since the start of the year.

Companies that provide phone and internet connections are investing in media to find new revenue sources and ensure they do not get relegated to being just "dumb pipes". Verizon bought AOL last year and has now proposed a deal for Yahoo to build a digital-ad business. Comcast bought NBCUniversal in 2011.

AT&T has been active, too. After its attempt to buy wireless competitor T-Mobile was scrapped in 2011 following opposition from regulators, the company doubled down on television by purchasing satellite-TV company DirecTV for 48.5 billion dollars (£40bn). AT&T is expected to offer a streaming TV package, DirecTV Now, by the end of the year, aimed at people who have dropped their cable subscriptions or never had one.

The pressure on AT&T has been intense. The venerable phone company, whose roots trace back to Alexander Graham Bell, has to contend with slowing growth in wireless services, given that most Americans already have smartphones.

And it faces new competitors for that business from cable companies. Comcast plans to launch a mobile phone service for its customers next year.

AT&T CEO Randall Stephenson, who will run the combined company, said the deal would allow AT&T to offer unique services, particularly on mobile, though without offering details.

Jeff Bewkes, the Time Warner CEO who will stay with the company for an undefined transition period, said more money would make it easier to produce additional programming and films.

Both men stressed that it would be easier to "innovate" when the companies were joined and did not have to negotiate usage rights at arm's length.

The combined company is also likely to lean more heavily on advertisements targeted at individuals based on their interests and personal details.

Buying Time Warner may be "a good defensive move" against Comcast as the cable giant continues stretching into new businesses, New Street Research analyst Jonathan Chaplin said on Friday. Comcast also bought movie studio DreamWorks Animation in August.

Even if the AT&T deal overcame opposition in Washington, it is possible that regulators might saddle the combined company with so many conditions that the deal no longer makes sense.

"It's not hard to imagine what you can do on paper. They would keep HBO exclusive for only DirecTV subscribers, or only make TNT or TBS available over AT&T Wireless," said analyst Craig Moffett of research firm MoffettNathanson, referring to Time Warner networks.

"But as a practical matter, those kinds of strategies are expressly prohibited by the FCC and anti-trust law."

Then there is the 85 billion dollars AT&T is handing over to Time Warner, almost 40% more than investors thought the company was worth a week ago.

"Count me as a sceptic that there is real value to be created," Mr Moffett said.

Amy Yong, an analyst at Macquarie Capital, said many celebrated media deals of the past had turned into duds, mentioning the Time Warner-AOL deal in particular.

"If you look at history, it's still an unproven" that big deals make sense, she said. AT&T, she noted, was paying "a huge price".

Still, she said that AT&T and other phone companies feel they have to act because the threats to their business seem to be coming from every direction.

"At the end of the day, these companies are trying to compete with Google and Facebook and Amazon, not just traditional competitors," she said. "You see Google pivoting into wireless."

John Bergmayer of public-interest group Public Knowledge, which often criticises media consolidation, warned of harm to consumers from the AT&T deal.

He said, for example, AT&T might let wireless customers watch TV and movies from Time Warner without counting it against their data caps, which would make video from other providers less attractive.


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