How AT&T Buying Time Warner Affects You

Last week, AT&T bought Time Warner for $107.50 a share. That’s a 36 percent premium on on Time Warner’s stock, adding up to a cool $85 billion.

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The deal will officially go through in late 2017 — as long as the US government lets that happen. Federal regulators blocked AT&T CEO Randall Stephenson’s $39 billion purchase of T-Mobile five years ago, so he probably isn’t popping bottles just yet. As the Verge notes, “the FCC has not defined net neutrality on mobile to the degree it has on wired broadband. This merger, should it pass, will almost certainly force that agency to take a deeper look at how it wants to regulate the marriage of mobile network operators and media companies they manage.”

WHY AT&T WANTED TO DO IT

If the FCC gives AT&T a break this time, the company will be even deeper into the streaming game. Stephenson already ventured into this realm with his recent $49 billion acquisition of Direct TV. The Dallas telecom giant was already preparing to launch a streaming service called DirectTV Now before the Time Warner deal, and buying the company with the rights to HBO, CNN, Warner Brothers, TNT and other platforms enhances the quality of content that AT&T can distribute to the 315 million people that it covers in the US. 

“If you were ever going to do something like this, this is the content you’d like to use as an anchor tenant,” Stephenson said. “Premium content always wins. It has been true on the big screen, the TV screen and now it is proving true on the mobile screen.”

WHY TIME WARNER WANTED TO DO IT

First, the deal is a major boon for Time Warner CEO Jeff Bewkes. Two years ago, 21st Century Fox offered to buy Time Warner for $85 per share and Bewkes walked away, saying that was an undervaluation of his company. Apparently he was right. Bewkes has also focused much of his Time Warner tenure on getting out of the distribution business and focusing content. The company used to own Time Inc. magazines and merged with AOL, but Bewkes thought that wasn’t the best place to invest Time Warner’s time and money. He beefed up the content and got out of those partnerships, and now AT&T decided that it wanted to distribute that content too over 300 million people, making for another feather in Bewkes’ cap.

WHY THIS MIGHT BENEFIT CONSUMERS

For one, AT&T’s scale could allow for one of, if not the, cheaper streaming services out there. Sling TV costs $20 a month, and you barely get basic cable for that, and the difference between a internet/TV and just-internet package might not even be $20 anyway. But now, as the Verge‘s Ben Popper wrote, younger consumers that want more than just the network channels and ESPN can get more in a quality bundle. “That would mean that instead of paying $14.99 a month for HBO Now or about $16 a month for NBA League Pass, they might get HBO, basketball from TNT, news from CNN, and a library of films from Warner Bros. for a single monthly fee,” Popper posits. And of course, if your phone as AT&T, you can stream all that from wherever.

WHY THIS COULD BE BAD FOR CONSUMERS

Well, if you don’t have an AT&T phone and but you don’t want to pay the sticker price, or even if you do want to pay sticker price, for HBO or NBA League Pass (which is part of Turner, which Time Warner owns). For instance, if you have Verizon, you can watch the NFL for free on your phone. If you don’t, too bad, even if you have FiOS at your house.

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This could conceivably happen with all Time Warner’s content, and that could cause major first world problems. Also, such exclusivity and scale could stifle new entries into the steaming marketplace, as Netflix and Verizon would probably feel they need to match AT&T with some acquisitions of their own, and then there would be little market share for anyone else.

8 comments

  1. wfbagleyiii · ·

    It sounds like this is not going to help consumers very much. I’m curious what a deeper dive in past mergers would tell you about how pricing has worked out to the customer’s advantage? I am also surprised at the limits on viewing. It sounds like the whole point is being able to watch anything from anywhere.

  2. rohansuwarna · ·

    Great job! I feel like At&t was in desperate need to expand their portfolio content. Also, with the financial backing that Time Warner needed they can expand their online streaming content. But the most important aspect is the portfolio that At&t can now access to expand their user base. The acquisition certainly affects many clients such as the NFL like you mentioned. Other corporations and their streaming rights will have to be renegotiated now I believe. All in all, great job!

  3. Austin Ellis · ·

    Interesting post Mike! I like that you weighed the pros and cons of what might occur from this merger. However, it is still important to remember that this is still just a proposal, and the actual deal may take over a year to actually happen. In addition, Time Warner’s (NYSE:TWX) stock price as of now is still at $88 per share, indicating investors have placed a low probabilty on this deal happening. The major concern is antitrust regulations, however, I think your post matches AT&Ts view that it is a pairing of content and distribution.

  4. Interesting post Mike, like it a lot more then you putting me on blast about 2k…but the past is the past hah. This at&t deal really snuck up on me, but I guess the deal has been in the works for months. What’s surprising is the library of content that Time Warner brings to this new At&T conglomerate that is being created. With HBO, TNT, CNN, and more…At&T is poised to make huge strides in the streaming industry. The real question is will this deal make it through federal regulation. Honestly I don’t believe so, there’s gonna be some anti trust violation the SEC finds, and then back to the drawing board for At&T.

  5. Nice post! Will be interesting to see how this one plays out over time.

  6. jagpalsingh03 · ·

    Interesting post! As Austin said, Time Warner’s stock price has fallen because Wall Street and a lot of legislators don’t see this deal happening. Both Donald Trump and Bernie Sanders have come out against this deal, so the animosity isn’t coming from one side! If the deal does get nixed, I wonder what the effects would be for both companies moving forward. On the other hand, I think it’s interesting that AT&T is looking to be more than just a medium for content and is getting its hands into being a source for premium content. As a consumer this does worry me because I don’t want to be in the midst of an exclusivity war among large tech companies and not have the ability to watch the content I enjoy, like you showed with the NFL example. Overall great post and I’m interested to see what the outcome of this possible deal is!

  7. magicjohnshin1 · ·

    Great post Mike! Definitely an interesting read. Being a finance major, this has been huge news and one of the largest acquisitions. Just given that news, it hugely affects our lives. It’s such an amazing way for AT&T to be able to buy this content and use their methods to distribute it to the world. What I’m interested in is how people will now be watching TV on their phones. One question I had was if you think this acquisition will go through given the current market sentiment and the mountain of regulations they will have to face? Can’t wait to read more, cheers!

  8. Great post! Here’s a brief history of premium content and content delivery services:

    1995 – Disney buys Cap Cities / ABC for 19 billion
    2000 – AOL buys Time Warner for 184 billion
    2008 – Time Warner spins off Time Warner Cable
    2009 – Time Warner spins off AOL
    2011 – Comcast buys NBC / Universal for 30 billion
    2015 – Verizon buys AOL for 4.4 billion
    2015 – Comcast tries to buy Time Warner Cable but denied
    2015 – Charter Communications buys Time Warner Cable for 78.7 billion
    2016 – Verizon buys Yahoo for 4.8 billion

    I think you nailed it on the head when you said that AT&T wants to get into the streaming game. Competitors like Disney and Comcast are already pretty embedded in the industry, as they have both a distribution company (ABC and NBC) while being able to produce high quality content (Disney and Comcast). AT&T needs to compete in a new market since they do not have first mover advantage and the streaming industry is pretty unsaturated. I honestly would be leaning towards the FCC approving this deal just because of how Verizon’s deal with Yahoo and AOL have been approved but who knows, the market price is only 87 dollars a share, meaning that the general public is still pensive about this deal getting approved (nowhere near 100+ per share).

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