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Does AT&T Deserve Time Warner?

One of the questions weighing on my mind as the long regulatory review of AT&T's proposed buyout of Time Warner drags on is whether this year's media mega-merger is different in any substantial way from Comcast's acquisition of NBCUniversal way back in 2011. If yes, then it should be closely evaluated. But if no, then AT&T should receive the same regulatory treatment that Comcast did when it brought NBCU in house. Right?

First, let's look at how the two transactions compare. In both cases, a major content distribution company is merging with a programming powerhouse. That leads to big advantages, including greater flexibility in developing content bundles, the ability to balance out program licensing fees paid to other companies with program licensing fees earned, and a larger, cross-platform set of assets to be used for advertising sales.

The fundamentals of both deals are the same, but there are differences.

One of the differences is price. The Comcast Corp. (Nasdaq: CMCSA, CMCSK) deal was initially valued at $30 billion when the cable company took a 51% stake in NBCUniversal LLC . Comcast then invested about another $16.7 billion when it took over complete ownership of the network two years later, for a total of $46.7 billion. AT&T Inc. (NYSE: T), on the other hand, is ready to shell out $85 billion for Time Warner Inc. (NYSE: TWX).

The difference in price sounds huge, but Comcast has also more than doubled NBCU's revenue since it bought the company. That makes the value of NBCU today presumably much closer to that of Time Warner, and also the combined entities of Comcast/NBCU and AT&T/Time Warner more similar.

What about scale on the distribution side?

Among the concerns that several Democratic senators recently outlined in a letter to Attorney General Jeff Sessions is the fact that while Comcast's distribution footprint is limited, AT&T has nationwide reach, therefore making the telco's tie-up with Time Warner theoretically more egregious.

Again, this sounds logical, but Comcast also controls a national mobile footprint through its MVNO deal with Verizon Communications Inc. (NYSE: VZ), even though it only sells to subscribers in its existing service area today. And while Comcast has pooh-poohed the idea of launching a nationwide OTT video service, it has also repeatedly demonstrated its ambition to expand not only nationally, but globally, through technology licensing deals, business services and more. That doesn't create an apples-to-apples comparison with AT&T, but it does show that Comcast's reach extends beyond its traditional cable territory, and that the company's presence is likely to continue growing further. (See Comcast Boasts Global Plans for X1.)

What about corporate behavior?

One potentially significant difference between the Comcast and AT&T deals is that even before the telco acquires Time Warner, it's already shown a willingness to use its distribution power to undercut other pay-TV competitors on price -- something Comcast hadn't shown before it acquired NBCU. Consumers can buy AT&T's DirecTV Now bundle for only $10 a month if they also subscribe to an unlimited wireless data plan.

Hooray, low prices! Well, yes, it's great in the short term.

In the long term, however, it means that AT&T is using its broadband revenues to subsidize pay-TV services, giving the operator a huge advantage over companies that don't own both content and distribution channels. That behavior threatens market competition, and with Time Warner content added to its library, AT&T will only have more incentive to keep programming costs high for others while it uses its broadband business to keep itself profitable on the distribution end.

Conclusion: Prior behavior is different, but that difference is accounted for as much by the change in the television market in recent years as it is by AT&T's corporate strategy. Comcast too has begun to subsidize TV services with its broadband offering, bundling a video subscription with broadband for only an extra $5 to $10 per month plus equipment costs. (Those equipment costs can add up if a subscriber connects several TVs, but a customer also has to pay a modem rental fee for broadband service if he doesn't own his own.)

Comcast decidedly wants to steer customers away from a broadband-only purchase. (See Why You Can't Quit Cable TV.)


For more cable market coverage and insights, check out our dedicated cable content channel here on Light Reading.


Here's the problem. Even if I could argue that there's a meaningful difference between AT&T's deal and the one Comcast completed more than six years ago, I'm not sure I'd buy my own argument. If held under oath, I'd say that I think the benefits accrued from the respective transactions are about the same. And that means, in my opinion, that the two deals make the competitive positions of AT&T and Comcast in the television market roughly equal.

If anything, AT&T may still wind up at a disadvantage in the pay-TV space given the fact that the conditions imposed on Comcast's merger with NBCU are set to expire soon. (See Comcast Ready for Clash With Hulu. )

From a consumer perspective, I don't think the NBCU deal should have been approved back in 2011. But since it was, there's a real argument that regulators will feel obligated to approve AT&T's buyout of Time Warner as well. Even if it's not in consumers' best interest.

And even if that means President Trump has to go back on another campaign promise. (See Trump: Dump AT&T/TW & Comcast/NBC.)

— Mari Silbey, Senior Editor, Cable/Video, Light Reading

Joe Stanganelli 6/26/2017 | 6:20:34 PM
Re: Does AT&T Deserve Time Warner? @daniel: That POV might be a tad alarmist. IMHO, it's really llittle to no different than, say, the example given in a recent story on Light Reading's Enterprise Cloud News site about the digital transformation of Deluxe Corp. -- once known strictly as a check-printing company. (link)
danielcawrey 6/26/2017 | 5:38:48 PM
Re: Does AT&T Deserve Time Warner? It's interesting to see these service providers get into content. Yes, it does make sense - especially given the existential threat that technology companies like Google, Netflix etc. could have on business. Yet I am wary about all this consolidation. It doesn't seem like a great thing for consumers if you ask me. 
Joe Stanganelli 6/26/2017 | 4:08:44 PM
Re: Does AT&T Deserve Time Warner? @KBode: Oh, well. I'm not a customer of either. ;)
KBode 6/26/2017 | 3:04:19 PM
Re: Does AT&T Deserve Time Warner? "Other days, and for other organizations, they blow another."

Yep. We saw that with the approval of the Charter Bright House and Time Warner Cable deal, a deal that was supposed to bring everybody the miracle of next-generation services, but has so far only doled out 40% rate hikes and somehow even worse customer service.

Enforcement is entirely and utterly arbitrary. More often than not, utterly unenforced. 
KBode 6/26/2017 | 8:06:45 AM
Re: Does AT&T Deserve Time Warner? I'd agree. From the sound of things he was only even threatening blocking the deal in the hopes of toning down critical CNN (Time Warner owned) coverage. I imagine the summer is going to be notably heavy on the M&A front. Anybody thinking this kind of consolidation ends well for consumers or smaller competitors -- especially as we move to gut consumer privacy and net neutrality protections -- are fooling themselves. 
Joe Stanganelli 6/25/2017 | 11:29:08 PM
Re: Does AT&T Deserve Time Warner? @marjsdad: As an attorney, I have found antitrust law to be among the most whimsical areas of law. Some days, and for some organizations, the winds blow one way. Other days, and for other organizations, they blow another.

The particular irony here is that the US government (albeit under a different administration) barred AT&T's proposed T-Mobile acquisition for antitrust reasons -- and yet, arguably, AT&T being allowed to acquire TW would potentially give it far greater market domination than acquiring T-Mobile would have.
Joe Stanganelli 6/25/2017 | 11:25:16 PM
Re: Does AT&T Deserve Time Warner? @Phil: I consider the campaign to be a non-issue; Trump, like most politicians (Presidents being no exception), has decided to move forward with some campaign "promises" (e.g., wall efforts, moving to dismantle the ACA, ) and not move forward with others (e.g., investigating/bringing charges against HRC, not moving to cut Social Security & Medicaid).

Certainly, though, he may go against what he said...or he may stick with it. But you are quite right that disallowed mergers are the exception and not the rule. It will be interesting to see what happens here.
Phil_Britt 6/23/2017 | 7:30:36 PM
Re: Does AT&T Deserve Time Warner? The merger will go through, despite what Trump said during the campaign. Then it won't be long before T-Mobile and Sprint tie the knot. There are very few mergers the government doesn't allow, and the current powers that be seem more "big corporation" than ever.

Would expect other, similar, mergers to follow as everyone tries to have an even playing field.
marjsdad 6/23/2017 | 12:59:02 PM
Does AT&T Deserve Time Warner? I'm not sure what the valuation is now, but at the time the AT&T / TW deal was announced, AT&T's market cap was 2-3 times that of the combined Comcast/NBCU. And, as you said, Comcast only has regional reach on the distribution side. However, I think the fact that TW has no major broadcast network sort of counterbalances AT&T's size and DirecTV's national scope. So, it's kind of a tossup, in my opinion, although it's not exactly apples to apples. Also, I don't think charging exorbitant license fees either on the TW side or on the NBCU side would help either entity in the long run. There's more pressure now than ever for programmers to want to stay "in the bundle" - fat or skinny.
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