Make us your home page
Instagram

AT&T's $85.4B deal for Time Warner is a new bet on synergy

FILE - This May 14, 2014 file photo shows an AT&T logo on a store in Dedham, Mass. On Saturday, Oct. 22, 2016, several reports citing unnamed sources said the giant phone company is in advanced talks to buy Time Warner, owner of the Warner Bros. movie studio as well as HBO and CNN. AT&T is said to be offering $80 billion or more, a massive deal that would shake up the media landscape. (AP Photo/Steven Senne, File)

FILE - This May 14, 2014 file photo shows an AT&T logo on a store in Dedham, Mass. On Saturday, Oct. 22, 2016, several reports citing unnamed sources said the giant phone company is in advanced talks to buy Time Warner, owner of the Warner Bros. movie studio as well as HBO and CNN. AT&T is said to be offering $80 billion or more, a massive deal that would shake up the media landscape. (AP Photo/Steven Senne, File)

NEW YORK — AT&T's $85.4 billion purchase of Time Warner represents a new bet on synergy between companies that distribute information and entertainment to consumers and those that produce it.

The acquisition would combine a telecom giant that owns a leading cellphone business, DirecTV and an internet service with the company behind HBO, CNN, and some of the world's most popular entertainment, including "Game of Thrones," the "Harry Potter" franchise and professional basketball. It's the latest big media acquisition by a major cable or phone company — such as Comcast's 2011 purchase of NBC Universal — and aimed at shoring up businesses upended by the internet.

Regulators would have to sign off on the deal, no certain thing. The prospect of another media giant on the horizon has already drawn fire on the campaign trail. Speaking in Gettysburg, Pennsylvania, GOP presidential nominee Donald Trump vowed to kill it if elected because it concentrates too much "power in the hands of too few."

Sen. Al Franken, a Minnesota Democrat, said the deal "raises some immediate flags about consolidation in the media market" and said he would press for more information on how the deal will affect consumers.

MEDIA MERGER MANIA

Network-owning companies like AT&T are investing in media to find new revenue sources and ensure they don't get relegated to being just "dumb pipes." In addition to the Comcast-NBC Universal deal, Verizon bought AOL last year and has now proposed a deal for Yahoo to build a digital-ad business.

After its attempt to buy wireless competitor T-Mobile was scrapped in 2011 following opposition from regulators, AT&T doubled down on television by purchasing satellite-TV company DirecTV for $48.5 billion. 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 venerable phone company 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 cellphone service for its customers next year.

AT&T CEO Randall Stephenson, who will run the combined company, said on a conference call that the deal will allow AT&T to offer unique services, particularly on mobile, though he didn't provide details. Jeff Bewkes, the Time Warner CEO who will stay with the company for an undefined transition period, added that more money will help fund production of additional programming and films.

Both men stressed that it will be easier to "innovate" when the companies are joined and don't have to negotiate usage rights at arm's length. (AT&T, of course, will still have to strike such deals with entertainment conglomerates it doesn't own.) 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 in a Friday note. Comcast also bought movie studio DreamWorks Animation in August.

POTENTIAL DOWNSIDES

Even if the AT&T deal overcomes opposition in Washington, it's 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 antitrust law."

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

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

Amy Yong, an analyst at Macquarie Capital, recalled many celebrated media deals of the past have turned into duds — in particular, Time Warner's disastrous acquisition by AOL in 2001. "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, Yong 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 the public-interest group Public Knowledge, which often criticizes 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.

MARKET MOVES

Shares of AT&T, as is typical of acquirers in large deals, fell on reports of a deal in the works on Friday, ending the day down 3 percent. But the prospect of more media acquisitions sent several stocks soaring Friday. Netflix and Discovery Communications each jumped more than 3 percent.

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

The company has moved aggressively to counter the threat that sliding cable subscriptions poses to its business. Among other things, it launched a streaming version of HBO for cord-cutters and, alongside an investment in internet TV provider Hulu, added its networks to Hulu's live-TV service that's expected next year.

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 $94 billion acquisition of Time Warner at the end of the dot-com boom.

In that last deal, AOL paid entirely in its own stock, which then proceeded to crater. This time, Time Warner is playing it safer. It's getting half of the deal in AT&T stock and half in cash.

AT&T's $85.4B deal for Time Warner is a new bet on synergy 10/23/16 [Last modified: Sunday, October 23, 2016 4:54pm]
Photo reprints | Article reprints

© 2017 Tampa Bay Times

    

Join the discussion: Click to view comments, add yours

Loading...
  1. Construction starts on USF medical school, the first piece of Tampa's Water Street project

    Health

    TAMPA — Dozens of workers in hard hats and boots were busy at work at the corner of South Meridian Avenue and Channelside Drive Wednesday morning, signaling the start of construction on the University of South Florida's new Morsani College of Medicine and Heart Institute.

    A rendering shows what the USF Health Morsani College of Medicine and Heart Institute will look like when completed in 2019. Local officials gathered Wednesday to celebrate as construction begins on the facility, the first piece of the Water Street redevelopment area in downtown Tampa. [Rendering courtesy of the USF Health]
  2. Tampa Bay among top 25 metro areas with fastest growing economies

    Economic Development

    Tampa Bay had the 24th fastest growing economy among 382 metro areas in the country for 2016. According to an analysis by the U.S. Bureau of Economic Analysis, Tampa Bay's gross domestic product, or GDP, increased 4.2 percent from 2015 to 2016 to hit $126.2 billion.

    Tampa Bay had the 24th fastest growing economy in the country for 2016. Rentals were one of the areas that contributed to Tampa Bay's GDP growth. Pictured is attorney David Eaton in front of his rental home. 
[SCOTT KEELER | Times]
  3. Tampa Bay cools down to more moderate home price increases

    Real Estate

    The increase in home prices throughout much of the Tampa Bay area is definitely slowing from the torrid rate a year ago.

    This home close to Bayshore Boulevard in Tampa sold for $3.055 million in August, making it Hillsborough County's top sale of the month. [Courtesy of Bredt Cobitz]
  4. With successful jewelry line, Durant High alum Carley Ochs enjoys 'incredible ride'

    Business

    BRANDON

    As a child Carley Ochs played dress up, draped in her grandmother's furs.

    Founder Carley Ochs poses for a portrait in her Ford Bronco at the Bourbon & Boweties warehouse in Brandon, Fla. on September 19, 2017. Ochs is a Durant High and Florida State University graduate.
  5. At Menorah Manor, planning paid off during Irma

    Nursing Homes

    ST. PETERSBURG — Doris Rosenblatt and her husband, Frank, have lived in Florida all of their lives, so they know about hurricanes.

    Raisa Collins, 9, far left, works on a craft project as Certified Nursing Assistant Shuntal Anthony holds Cassidy Merrill, 1, while pouring glue for Quanniyah Brownlee, 9, right, at Menorah Manor in St. Petersburg on Sept. 15. To help keep its patients safe during Hurricane Irma, Menorah Manor allowed employees to shelter their families and pets at the nursing home and also offered daycare through the week. The facility was able to accommodate and feed everyone who weathered the storm there. [LARA CERRI   |   Times]