AT&T & Time Warner in Merger Talks – Report

Takeover of Time Warner would put AT&T in control of some of the most valuable media content in the world.

Iain Morris, International Editor

October 21, 2016

4 Min Read
AT&T & Time Warner in Merger Talks – Report

Telco giant AT&T and content owner Time Warner are said to have held meetings about a merger that would count as one of the biggest such deals of all time.

The two companies have had informal discussions about various business strategies that could include a takeover of Time Warner Inc. (NYSE: TWX) by AT&T Inc. (NYSE: T), according to sources cited in a Bloomberg report.

One of the biggest communications service providers in the US, AT&T could be interested in taking control of Time Warner's media assets -- which include Home Box Office Inc. (HBO) as well as CNN, Cartoon Network and New Line Cinema -- to shore up the appeal of its broadband and pay-TV offerings.

While telcos in various parts of the world have been getting into the content-ownership game, an AT&T takeover of Time Warner would be on a much bigger scale than most other moves.

The media company's HBO channel is perhaps the jewel in its crown, producing hit shows such as Game of Thrones and The Sopranos.

Discussions are clearly at a very early stage and may lead to some kind of partnership agreement, rather than a full-blown merger, but Time Warner's share price closed up nearly 5% on Thursday after the speculation first surfaced, valuing the company at about $64 billion.

AT&T, meanwhile, lost nearly 2% and is currently worth about $234 billion on the basis of market capitalization.

Despite the rising appeal of user-generated and so-called "long tail" content, the market for expensively produced shows like Game of Thrones has continued to grow.

Such premium content now figures prominently in the broadband and pay-TV strategies of some of the world's biggest operators. Competition from over-the-top players like Netflix Inc. (Nasdaq: NFLX) and Inc. (Nasdaq: AMZN), which have been developing their own shows, is fueling the interest.

Interestingly, Bloomberg's report comes just weeks after AT&T announced that it had struck a "multi-year, strategic agreement" with HBO to make its content available to customers using a variety of products. (See AT&T Teams with HBO for Streaming Service.)

Want to know more about the impact of web services on the pay-TV sector? Check out our dedicated OTT services content channel here on Light Reading.

While Time Warner's various operations have had mixed sales fortunes so far this year -- with overall revenues dropping about 5% year-on-year, to $6.95 billion, in the April-to-June quarter -- its shares have gained more than a fifth in value since the beginning of the year, thanks largely to enthusiasm for HBO's line-up of programs.

AT&T took a huge step into the pay-TV market with its $48.5 billion acquisition of satellite company DirecTV Group Inc. (NYSE: DTV) in July last year, and it has since looked keen on building up its portfolio of TV and media content. (See AT&T Starts DirecTV Era With New Bundles.)

Bolstered by the acquisition of DirecTV, AT&T had 25.3 million video subscribers at the end of June, up from just 5.9 million on its U-verse broadband platform a year earlier. The operator has blamed declines in the number of U-verse subscribers on its efforts to boost profitability and focus on the sale of satellite-based services.

AT&T's strategy seems at odds with the approach being taken by some major European operators. Deutsche Telekom AG (NYSE: DT) and Vodafone Group plc (NYSE: VOD), for instance, have recently said they prefer to concentrate on being content "aggregators," rather than owners and developers. (See DT, KPN, Vodafone Unenthused by Content Ownership.)

Even so, both the UK's BT Group plc (NYSE: BT; London: BTA) and Spain's Telefónica have spent heavily on TV sports rights to attract customers to bundles of high-speed broadband and pay-TV services. With broadband competition mounting, concern that subscribers could defect to rival providers is driving that activity. (See BT, Sky Splash £5.1B on Premier League Rights.)

— Iain Morris, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, News Editor, Light Reading

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About the Author(s)

Iain Morris

International Editor, Light Reading

Iain Morris joined Light Reading as News Editor at the start of 2015 -- and we mean, right at the start. His friends and family were still singing Auld Lang Syne as Iain started sourcing New Year's Eve UK mobile network congestion statistics. Prior to boosting Light Reading's UK-based editorial team numbers (he is based in London, south of the river), Iain was a successful freelance writer and editor who had been covering the telecoms sector for the past 15 years. His work has appeared in publications including The Economist (classy!) and The Observer, besides a variety of trade and business journals. He was previously the lead telecoms analyst for the Economist Intelligence Unit, and before that worked as a features editor at Telecommunications magazine. Iain started out in telecoms as an editor at consulting and market-research company Analysys (now Analysys Mason).

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