Ed Barton of UK-based research house Ovum told DTVE‘s sister title TBI the implications were “fundamental” for “all distributors without a stake in content and all [other] media companies who will have to adjust to a competitive landscape with a new behemoth competing for brand advertising dollars”.
“Netflix, Disney, Viacom and the majority of pay TV service providers, particularly those offering services targeting the lower value ends of the TV market, will all be looking at their strategies with new eyes this morning,” added Barton, who is Ovum’s head of TV practice.
Barton pointed to the advertising opportunity created by the two companies together, through “practically all key content types and multichannel distribution”. It will have huge audience viewing data capabilities and be able to offer massively integrated campaigns for partners across platforms.
However, integrating Time Warner’s content and AT&T’s platforms was more “nebulous”, Barton said, as the former’s content group would not offer “sweetheart deals” for competition and regulatory reasons.
However, “‘AT&Warner’ has a significant opportunity to experiment with bundles given its scale and the breadth of content from ultra-premium – HBO and early window Hollywood movies – to OTT – AT&T-backed SVOD service Ellation – and fixed and mobile data networks,” said Barton.
For AT&T meanwhile, access to the HBO library presents a major opportunity for a telco. “While practically every other product or service offered by ‘AT&Warner’ can, to a great extent, be replicated by a competitor, if someone wants to watch the latest series of Game of Thrones this is not a fungible or even vaguely substitutable product,” said Barton.
“Another high fantasy epic set in a medieval milieu will not satisfy that desire any more than watching another superhero movie would satisfy someone who wants to watch the latest Batman movie from the Warner Bros. movie studio.”
AT&T is acquiring Time Warner for a total of US$85 billion in stock and cash, with each share valued at US$107.50, around a 36% premium. Both boards have unanimously agreed to the terms, and announced the deal over the weekend. US reports suggest deal announcement was to be held back until after the US presidential election, but a leak meant it was brought forward.
In effect, this brings together AT&T’s customer base, pay TV infrastructure and operations, and mobile and broadband assets with Time Warner’s huge content library, Turner channels business, Hollywood studio Warner Bros. and premium cable network HBO.
Consolidation between the global telecoms and content industries has long been the subject of speculation, and AT&T has already acquired US pay TV provider DirecTV, which operates the Audience Network.
The telco also has a joint venture with Peter Chernin’s Chernin Group, Otter Media, which backs OTT platforms and is soon to launch its own SVOD service Ellation. Chernin is rumoured to be in line for a key management position in the entertainment part of AT&T/Time Warner, though Bewkes has played this down.
AT&T sees the deal as providing it with the video capabilities that industry executives and analyst expect to fuel the telco market in coming years, especially in terms of mobile viewing.
AT&T has TV, mobile and broadband assets in the US, mobile platforms in Mexico and TV operations in Latin America. It believes buying Time Warner will allow it to offer “unmatched choice, quality, value and experiences”, better and more relevant advertising, new content distribution models, and made over-the-top and TV Everywhere products “smarter and more personalised”.
“This is a perfect match of two companies with complementary strengths who can bring a fresh approach to how the media and communications industry works for customers, content creators, distributors and advertisers,” said Randall Stephenson, AT&T chairman and CEO.
“Premium content always wins. It has been true on the big screen, the TV screen and now it’s proving true on the mobile screen. We’ll have the world’s best premium content with the networks to deliver it to every screen. 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.”
Stephenson will lead the combined entity, with Time Warner CEO Jeff Bewkes saying in a conference call he would exit once the deal is done – though the agreement faces tough regulatory scrutiny, with both US presidential candidates, Donald Trump and Hillary Clinton, seemingly against it for differing reasons. Approval should take around a year to gain, with Bewkes likely remaining beyond that point in a transitional period.
For the long-serving Bewkes, the deal proves he was right to reject 21st Century Fox’s opportunistic bid to buy Time Warner in 2014 for around US$80 billion.
He said this weekend selling to AT&T “dramatically accelerates” Time Warner’s ability to distribute its content, which includes the Harry Potter film franchise and the ultra-popular Game of Thrones, and channel brands such as HBO, Cartoon Network, TNT and TBS. Time Warner also owns 25% of VOD service Hulu.
The deal is the biggest corporate transaction in 2016, and even eclipses the US$79 billion acquisition that last year saw Charter Communications buy Time Warner Cable, which spun out of Time Warner.
The key for Time Warner will be ensuring this merger is more successful than the disastrous 2000 deal that merged it with digital distributor AOL. Bewkes called that partnership, which de-merged in 2009, “the biggest mistake in corporate history”.