Word that AT&T was close to acquiring Time Warner has rekindled talk of consolidation in the media business. Combining with AT&T would put Time Warner content companies HBO, TNT, CNN and Warner Bros. under the same roof as multichannel distribution giants DirecTV and UVerse as well as AT&T’s powerful mobile network.
The deal would reverse years of work for Time Warner CEO Jeff Bewkes, who aimed to create a premium content company by selling off units like AOL, Time Warner Cable and Time Inc.
AT&T would be following in the path of Comcast, which has prospered since acquiring NBCUniversal, giving its pipelines an abundant supply of content. While Comcast appears to have a bigger and better-developed wired network, AT&T may have an advantage in mobile, where more viewers are consuming content.
Cable pioneer John Malone, whose Charter Communications bought Time Warner Cable, has been talking about further industry consolidation. Malone has interests in Starz and Lionsgate, which are combining, as well as Discovery Communications.
Shares of Discovery, and other companies Malone has identified as “free radicals” in the content business, saw their shares rise on the AT&T, Time Warner news.
Also on the path to consolidation are CBS and Viacom, which are both controlled by the Sumner Redstone family. Each company has each hired advisors to study a combination, which would undo the spinoff of CBS 10 years ago.
Bewkes fought off the acquisition of Time Warner by Rupert Murdoch’s 21st Century Fox in 2014, arguing that Murdoch’s $85 a share offer undervalued Time Warner’s assets.
Since then, Time Warner’s revenue and earnings have risen, HBO has launched a long-awaited over-the-top, direct-to-consumer product and Turner Broadcasting has locked in new long-term distribution deals that should push subscriber fees up at close to double-digit rates for the next few years, even as other media companies worry about lower affiliate revenue growth because of cord-cutting and skinny bundles.
Analysts now speculate that AT&T would have to pay as much as $110 a share in order to secure Time Warner before another bidder emerges, possibly from Silicon Valley, where companies including Apple and Google are building OTT TV platforms that will eventually require exclusive premium content.
Time Warner is a particularly tasty morsel because it is not owned by a family or investors who could block a transaction or make one difficult.
As quickly as an AT&T-Time Warner deal could come together, final approval by government regulators could be dicey.
Both the Justice Department and the FCC have raised concerns about vertical integration of content owners and distribution platforms—like Comcast and NBCUniversal. The Comcast deal did finally clear the regulatory bar, but only after Comcast agreed to significant concessions.