Telecommunications giant AT&T may not be quite the same company as when it stood as the only telephone monopoly in the U.S. until the 1980s, but a new agreement to acquire Time Warner Inc. is set to remake it as one of the largest modern media companies.
The deal, valued at more than $108 billion, including the assumption of Time Warner’s outstanding debt, will give the carrier control of some of the most valuable content companies in the world, e.g., Warner Bros. Entertainment, DC Comics and HBO as well as television networks such as TNT, TBS, and CNN.
“This is a perfect match of two companies with complementary strengths who can bring a fresh approach to how the media and communications industry works for customers, content creators, distributors and advertisers,” said AT&T chairman and CEO Randall Stephenson in statement.
Better Value for Content
“We’ll have the world’s best premium content with the networks to deliver it to every screen,” Stephenson added, arguing that one of the biggest pain points for customers is paying for content once but not being able to access it on any device, anywhere. Stephenson said the merger is intended specifically to address that issue.
The combined company will consist of a mobile network with more than 315 million customers in the U.S., and should be able to compete nationwide with cable companies in the fight to offer bundled mobile broadband and video services.
“Owning content will help AT&T innovate on new advertising options, which, combined with subscriptions, will help pay for the cost of content creation,” the company said. “This two-sided business model — advertising- and subscription-based — gives customers the largest amount of premium content at the best value.”
Not the First Time
But the deal announced Saturday isn’t the first time Time Warner has been involved in a blockbuster merger. In 2000, Time Warner was acquired by AOL for $164 billion. The logic behind that deal echoed the strategy AT&T laid out Saturday: by combining a content production powerhouse with a major Internet distributor, the combined company would be worth more than the sum of its parts.
But AT&T is probably hoping history doesn’t repeat itself. The 2000 deal has gone down as one of the biggest mistakes in M&A (mergers and acquisitions) history, with AOL quickly succumbing to the collapse of the dot com bubble in 2001. By the end of the decade that deal was undone, with Time Warner spinning off AOL as a separate company in 2009. Then last year, AOL was acquired by Verizon for $4.4 billion.
AT&T is arguing that this time, things are different. In a conference call, the company told investors that the two companies will work together closely, with AT&T providing Time Warner with detailed information on what content customers are interested in, and leveraging that advantage to demand higher premiums for advertising.
However, the dealmakers will also need to convince government regulators that the combination of content making and content delivery won’t be prejudicial to customers.
