ATT-Time Warner

AT&T Proposed Time Warner Takeover Illustrates Intense Hunger For Content:

We are in boom times for the combination of communications giants and the best entertainment content available. But, hanging over the intense competition for content is the Justice Department anti-trust lawsuit against the $108 billion takeover by AT&T of Time Warner.

There is plenty of competition for Time Warner’s networks like HBO, and its movie studio, Warner Bros. Global deep pocketed rivals like Amazon, Netflix, Facebook and Google are threats to the television network industry. I don’t see any slowing down in the drive by Netflix, Amazon, Google and others to offer online streaming competition to the television and cable networks. Netflix already has 110 million subscribers, while Amazon has 90 million Prime members and Alphabet (Google) has a steaming service that offers 40 different channels of entertainment. The power of these powerful newcomers has changed the dynamics of the entertainment business for all time.

Moreover, Comcast, Verizon and the combination of Sony with Walt Disney are hungering for the content parts of Rupert Murdoch’s entertainment empire that seem to be on the market like the Fox movie studio, its cable television channels and Fox’s 30% interest in Hulu, another streaming service. Must-have content is the absolute necessity for the communications distributers looking to broaden their markets. Any additional transaction will change the power structure in entertainment once again. The markets are fluid.

AT&T is hungry to get its hands on Time Warner’s content-producing assets like HBO, TBS, CNN and the movie studio, but first it must fight off an anti-trust action brought by the Justice Department, and the risks are great for the deal to go through, as Time Warner shares are selling at $89.50, a steep discount from the $107.50 they’d be worth if the deal was finally closed.

It’s Donald Trump’s least favorite corporate merger, the combination of America’s premier communications giant with Time-Warner, one of the most successful content providers. So, the market is sending a distinct signal of the dire risks from a successful government law suit against the merger for anti-trust reasons. The government’s law suit charges that the “newly combined firm would…use its control of Time Warner’s popular programming as a weapon to harm competition. The proposed merger would result in fewer innovative offerings and higher bills for American families.” I find this claim doubtful of proof in a court of law.

The deal would combine Time Warner’s unequalled library of content with the world’s largest pay TV subscriber and significant operations in mobile and broadband distribution. It is the quintessential combination of communications hardware and superb content including one of Hollywood’s major film studios, Warner Bros.

There had been reports prior to the lawsuit being brought that the government had asked AT&T to sell either Direct TV or Turner Broadcasting, the Time Warner division that owns CNN as well as TBS and TNT as the price for getting the government’s approval of the deal.

The suit also claims “AT&T/DirectTV would hinder its rivals by forcing them to to slow the industry’s transition to new and exciting video distribution models that provide greater choice for consumers.” The emerging online competition is already got too great a momentum to be stopped by anti-competitive strategies. Thus competition is increasing across the board rather than being lessened by government takeover action.

The government could take a leaf from the 2011 merger of Comcast and NBC Universal and bar Time Warner from withholding its content from competitors. Instead it is trying to stop a merger that is likely to intensify competition in the provision of content. The result will be key to the valuation of companies providing content to distribution networks.

 

By Robert Lenzner @ Forbes