Two huge companies will join forces when AT&T acquires Time Warner. The resulting company could change the face of media and telecommunications, but is the merger a good idea?
Details of the Deal
Under the preliminary details of the deal, AT&T will acquire Time Warner for the equivalent of $85.4 billion in cash and stock. The boards of both companies are unanimously supportive of the merger, which is expected to be finalized by the end of 2017. Time Warner CEO Jeff Bewkes will stay with the merged company to assist in the transition after the deal goes through.
However, merging two large companies puts the deal under a microscope for regulators. The deal will have to be approved by Time Warner shareholders and the U.S. Department of Justice. Although the similar Comcast-NBC merger was approved, this deal is not a sure thing until it works its way through all of the regulatory channels that are looking for any signs of unfair competition. Politicians from both parties have already expressed their dislike for the deal, noting that large media conglomerates often lead to higher prices and less choices for consumers. The upcoming election could sway political opinion about the merger further one way or the other.
What Does it Mean?
AT&T CEO Randall Stephenson has long said his goal was to expand the company into media and entertainment, and this deal does just that. The merger would give AT&T, one of the largest telecommunications companies in the U.S., a powerful grasp of the entertainment world. Time Warner owns HBO, Turner, Warner Bros., plus the rights to a huge range of major sports leagues. Combining AT&T’s content with new distribution points gives the merged company easy access to deliver quality shows and entertainment via mobile devices, TV, or theater. In essence, it would allow AT&T to show all of Time Warner’s content to its current subscribers, especially via mobile device, which is a huge advantage over the competition. By owning all aspects of the content and distribution process, the new AT&T can avoid many legal processes related to using licensed material and potentially pave a path to a new way of viewing content.
“Having scale, reach, and diversity of assets might offer the greatest protection of all,” said industry analyst Walt Piecyk, noting that telecommunications companies operate in a rather volatile space.
Risk for AT&T
While there is some uncertainty that the deal won’t go through, it is a risk AT&T is willing to take. Merging with Time Warner provides the company a number of competitive advantages over other telecommunications companies. First, its ability to use licensed video puts its video service above others and helps position it for an internet-dominated media future. The deal also moves AT&T firmly in competition with Comcast, another telecommunications company that also owns a media conglomerate.
However, some experts are questioning whether the merger is the best combination of companies. AT&T is known for being more traditional in a rather stodgy environment, while Time Warner works with a more forward-thinking Hollywood mindset. There’s also the size issue: AT&T, with 281,000 employees and 2015 revenue of $146.8 billion, is more that five times as profitable as Time Warner and has more than 10 times the employees. Some experts are saying that AT&T is overpaying for Time Warner, a price difference that may get passed on to customers to fill in the gap, and that AT&T’s plan for the future doesn’t mesh with predictions of how consumers want to consume content.
If the deal fails to finalize, it is estimated that AT&T will have to pay Time Warner $500 million, which is a relatively small fee compared to other situations and is mere pocket change compared to the financial benefits the company could reap if it all works out.
Combining AT&T and Time Warner could change the face of media. There’s no doubt that AT&T could benefit in some manner from the deal, but the real question is if the benefits will be passed on to customers and if the two companies can successfully integrate.
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