The court approval of US telco giant AT&T’s acquisition of Time Warner will have huge ramifications for the media and entertainment sector; in fact, it already is...
AT&T finalises acquisition of Time Warner
The entertainment, media and technology worlds watched with bated breath this week as a US court deliberated over whether to allow AT&T’s $85bn takeover of Time Warner this week. On Tuesday, the wait came to an end: a federal judge approved the communication giant’s purchase of the entertainment company with no conditions, and the US government, which had argued that the acquisition would harm consumers, has since stated that it will not seek an injunction to stop the deal.
AT&T now owns the rights to Time Warner’s vast range of media and entertainment assets, including major sports leagues and film franchises such as Harry Potter and Lord of the Rings. Time Warner’s TV content, now also owned by AT&T, is arguably unrivalled, including as it does Game of Thrones, The Wire, True Detective, The Sopranos and many more. Channels HBO and CNN are included in the deal, as is HBO’s SVoD app which boasts 130 million subscribers who each pay about $15 a month. There’s also Time Warner’s video game assets such as Lego, which bring in $2.5bn a year in revenue.
Consumer behaviour is driving seismic shifts in content distribution and production
In short, the AT&T acquisition of Time Warner is one of the biggest and most significant mergers of content producers and distributors ever, and represents a seismic shift for the media and communications industries not only in the US, but across the world. It is the culmination of dramatic changes disrupting the media and technology spaces, driven by changing consumer behaviour. Consumers are increasingly consuming content on mobile devices and over internet connections, so distributors who could previously rely on provision of cable services for revenue are scrambling to adapt; this will only be made more urgent by the advent of 5G. Companies such as YouTube, Amazon and Netflix – the latter now the world’s most valuable media company – are upping the stakes even more; indeed, AT&T argued that they needed to acquire Time Warner so they could remain competitive against these and other SVoD providers.
Comcast and Disney are in a bidding war for 21st Century Fox
This dramatic shift in the media industry is the driving force behind a flurry of mergers between content distributors and producers. The trend started with Comcast’s purchase of NBC Universal in 2011 and last week’s announcement about AT&T and Time Warner is expected to accelerate that trend. Indeed, Comcast are once again in the spotlight having announced just days after the AT&T news that they have made an all-cash offer of $65bn for the large portion of 21st Century Fox that
Rupert Murdoch has put up for sale. That’s a significant increase on the $52.4bn offer that rivals Disney made in December and demonstrates how desirable the Fox assets, which include the film and TV studios, cable networks and a stake in streaming service Hulu, are to distributors. It remains to be seen how Disney will fight back.
Mergers between distributors and producers will open up opportunities for cross-promotions across different parts of a business, for example the exclusive screening of proprietary content on a distributor’s networks (although this has been explicitly prohibited in past deals), as well as opportunities to increase revenue by licensing shows to other distributors and fleshing out existing pay-TV offerings.
The meaning of these acquisitions for advertisers
Of course, such big news in the entertainment sector will inevitably have a profound impact on advertisers. AT&T has for some time been working on an advertising and analytics unit, headed up by ex-Group M North America CEO Brian Lesser, that will create an ‘automated advertising platform that can do for premium video and TV advertising what search and social media companies have done for digital advertising’. AT&T CEO Randall Stephenson has openly stated that his company’s goal is to enable TV advertising to target consumers and households more specifically in order to compete against the likes of Facebook and Google. It’s ambitious, but when you consider that AT&T collects data from its nearly 160 million wireless and 40 million pay-TV subscribers, and will own content from Time Warner networks like HBO, CNN and TNT, it suddenly seems more than feasible – particularly as it will be one of the few US companies that will be able to follow consumers across their TV screens, computers and mobile devices. AT&T’s move into this area (and we imagine Comcast isn’t far behind) is yet another demonstration of the fact that the ability to gather consumer data, analyse it and transform it into value for the consumer – and therefore advertiser revenue – is a huge financial opportunity.
Once again, we’re seeing the effects of technology on the media and communications industry. The AT&T acquisition of Time Warner and the outcome of the 21st Century Fox bidding war between Comcast and Disney will have a profound impact on the US media scene for years, if not decades – and we expect that similar vertical mergers will become the norm in both the US and across the world. The lines between the media, entertainment, technology and communications industries are becoming increasingly blurred.