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AT&T and Time Warner: 'Big is Beautiful'
Following its $49 billion grab for DirecTV in 2015, AT&T has now offered $84 billion to acquire Time Warner Inc. The deal is subject to regulatory scrutiny and the FCC will be under pressure by a number of parties to block the deal, including Donald Trump, who has already said he will veto it if elected on the basis of too much concentration of power.
The value of entertainment M&A deals has skyrocketed as major network providers have moved to acquire content properties and the cable industry has continued to consolidate. Vertical integration is back in fashion - in 2009, Time Warner spun out its cable unit Time Warner Cable (TWC), seeing little strategic value in owning a physical network and netting its shareholders a windfall of about $9 billion in the process. In 2016, Charter Communications bought TWC for about $60 billion (as well as Brighthouse Networks for $11.1 billion in a separate transaction), catapulting the company into the #3 slot in US Pay-TV after Comcast and DirectTV, with 25 million subscribers. (Charter, mired in debt, was in Chapter 11 bankruptcy protection in 2009).
|Comcast/NBC Universal||2011||$30 Billion|
|Charter/Time Warner Cable & Bright House||2016||$71 Billion|
|AT&T/Time Warner Inc||(Proposed||$84 Billion|
Although there may be opportunities for vertically owned companies to bundle content and services, the likely competitive advantage gained may actually not be that significant. The marriage of Comcast and NBC Universal is now 5 years old, but the two entities seem to still largely operate as separate businesses, i.e. provision of network services and entertainment content respectively. AT&T is planning a $35 per month DirecTV streaming service which is likely to be offered at a similar price to anyone with Broadband, not just AT&T network subscribers. OTT SVoD services, including Time Warner's HBO Now, invariably offer multi-device access to subscribers, regardless of network provider.
So it may be that a simple corporate thirst for bigger operating scale underlies the current spate of deal making, especially as dominant network providers are limited in terms of maximum horizontal ownership. For example Comcast abandoned its $45 billion attempt to buy Time Warner Cable in 2015 in the face of institutional concerns over market concentration. Similarly AT&T was blocked in its $39 billion attempt to buy T-Mobile in 2011.
What Will AT&T and Time Warner Bring to the Table if the Deal Goes Ahead?
|AT&T||Time Warner Inc|
|Revenue $147 Billion||Revenue $28 Billion|
|Wireless Subscribers 137 Million||Warner Bros: #1 in TV & Movie Production|
|Broadband Subscribers 14.3 Million||Global Distribution, Theme Parks etc.|
|Video Subscribers 25.4 Million||Turner, CNN, Cartoon Network, Other Cable|
|(DirecTV 19.8 Million, U-Verse 5.6 Million||HBO, 46 Million Subs, International Distribution|
|Video Revenue $20.3 Billion||50% of the CW Network (with CBS)|
|Business/International Communications||DC Superheroes: Games, Toy Franchises|
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