When telecommunications giant AT&T Inc. acquired DirecTV last year, few could have expected that it was a sign of what was to come in the company’s future in the media.
Earlier this August, rumors surfaced that AT&T and media conglomerate Time Warner Cable were meeting in secret to plan out a potential merger. These discussions finally came to light in mid-October and, on Oct. 22, the two companies announced that they agreed to an $85.4 billion merge deal.
If approved, the merger will give AT&T significant holdings in the media industry. This is the most recent attempt on Time Warner’s part to merge with another company since the failed bid from Rupert Murdoch’s 21st Century Fox.
“When one takes into account DirecTV and wireless customers, AT&T has grown to become one of the largest distributors of video content nationwide,” Amir Rozwadowski, Wall Street analyst at Barclays, said.
With both DirecTV and Time Warner Cable under its belts, AT&T now stands on equal footing with competitors like Comcast, which purchased NBC Universal in 2013, and Verizon, which recently made a move to purchase Yahoo’s core assets. In the case of AT&T, the company now has direct access to some of the hottest franchises in pop culture, such as Game of Thrones and the DC Extended Universe. In many ways, this deal could also be seen as the modern-day equivalent of the classic Hollywood film distribution method of block booking films to studio-owned movie theaters. This time, however, the studio is distributing its content straight to DirecTV and AT&T customers.
In the long run, both companies have a lot to gain from this merger. For Time Warner Cable, the sale will bring in more revenue. Analysts believe that CEO Jeff Bewkes has been preparing the company, which comprises of Warner Bros. Pictures, HBO and CNN, among others, for a sale for quite some time. When factoring in Time Warner Cable’s debt, the merger will be valued at $109 billion. On AT&T’s side, there is the aforementioned growth and increased media foothold. While its constant connectivity is powerful and profitable in its own right, having a major media conglomerate increases the overall value of the AT&T brand.
Another reason for the merger stems from how AT&T’s mobile customers receive media content on their phones and tablets. Even with apps like Instagram and Snapchat being popular among smartphone users, people spend more time watching popular media creating their own content.
Owning popular properties gives AT&T a significant amount of leverage compared to other media companies. AT&T already offers a DirecTV and Wi-Fi package and has plans to launch a streaming service called DirecTV Now. The merger could help bring the service running out of the gate.
The AT&T-Time Warner Cable merger has already been compared to both the aforementioned Comcast-NBC merger and the recent Verizon-Yahoo merger. All three mergers had similar goals of combining the operations of two companies into one massive communication-media enterprise. The major difference is that Comcast and Verizon took part in what is known as a “horizontal merger,” which happens when two companies with similar businesses come together and combine operations. The AT&T-Time Warner Cable merger, on the other hand, is known as a “vertical merger,” which is placing two different kinds of businesses under the same roof.
Nonetheless, the announcement and the lofty goals that both sides promise would come from it are not without its detractors. Many of the deal’s doubters look back on the infamous 2000 merger of Time Warner Cable and America Online. What was promised to be a marriage of two companies at the peak of the dot-com boom turned out to be a disastrous affair that led to Time Warner Cable’s value taking a hit. AOL’s overall value was also affected, taking a complete nose dive and beginning the internet company’s long march to irrelevancy.
Whether or not the AT&T-Time Warner Cable merger turns out to be a repeat of the AOL Time Warner debacle remains to be seen. The deal, however, is currently one of the largest in the media industry. Rumors are already flowing that 21st Century Fox Inc. and The Walt Disney Company are planning to make similar deals later down the road.
The AT&T and Time Warner Cable merger is expected to be finalized in 2017.