AT&T, TimeWarner propose merger


AT&T to purchase TimeWarner for $85 billion

Opponents to deal already lining up

Bugs Bunny, Sheldon Cooper, and Scooby Doo are getting ready to reach out and touch someone – a lot of people, that is.

While Chicago and the rest of America (except in the St. Louis area) was busy celebrating the Cubs’ advancing to the World Series for the first time in 71 years, AT&T and Time Warner snuck through an announcement last Saturday night – a  proposed merger valued at $85 billion. If approved, the nation’s largest telecom will hook up with one of the nation’s largest TV and film studios.

AT&T – formed after the merger of Southwestern Bell Corp. and Ameritech (two former baby bells who were part of the original AT&T phone monopoly), has bought up properties in recent years, including satellite provider DirecTV. AT&T also has U-Verse and other properties. Recently, AT&T purchased Root Sports’ regional sports networks , who hold rights to the Pittsburgh Penguins, Pittsburgh Pirates, Colorado Rockies, and Seattle Mariners.

TimeWarner was formed in a merger between Time Inc. and Warner Communications in 1989. In 1995, they purchased Turner Broadcasting, owner of cable channels CNN, TBS, TNT, Court TV (now Tru TV), Turner Classic Movies, TNT, Adult Swim, Cartoon Network, and other cable properties.  In 2000, they merged with AOL, only to see the company fall apart years later resulting in the spin-off of the one-time Internet giant.

In recent years, Time’s magazine division and Time Warner Cable were spun off to their own companies, with the latter being purchased by Charter Communications earlier this year after a proposed merger with Comcast fell though.

As far as content is concerned, Warner Bros. produces many of television’s top shows including The Big Bang Theory, The Middle, Mom, and others. Its syndication division (formed through a merger of Lorimar-Telepictures in 1988) currently has Ellen, Extra, TMZ, Fuller House (for Netflix) and a proposed new Drew Barrymore talker for next fall (more on that in the next post.) Off-network properties include Big Bang, Two And A Half Men, with Mom coming in 2017. AT&T would also gain the half of The CW TimeWarner owns (CBS Corporation, who is considering recombining with Viacom – owns the other half.)

Warner Bros. would become an AT&T company if the merger goes through.
Warner Bros. would become an AT&T company if the merger goes through.

AT&T would also control the libraries of Warner Bros. Animation and Hanna-Barbera Productions, including the licensing rights for Bugs Bunny, Scooby-Doo, The Flintstones, Powerpuff Girls, Teen Titans, and Captain Planet. AT&T would also control DC Comics – home of Batman, Superman, Wonder Woman, and more. Warner Bros. also has the home video and streaming rights to all Peanuts television specials, including A Charlie Brown Christmas and It’s The Great Pumpkin.

And the big prize of course, is premium service HBO, home to Game of Thrones, WestWorld, and World Championship Boxing.

The deal is already drawing a lot of negative reaction. Republican Presidential candidate Donald Trump said he would block the deal – unusual, given his party are generally friendly to big-media mergers. Former Presidential candidate Bernie Sanders is also opposed to the deal, as were several consumer groups, who stated their opposition as soon the deal was announced. While we have yet to hear from Hollywood’s creative community, historically deals like these have not been supportive due to the fear of companies favoring their own outlets instead of getting the best deal possible – a practice more routine in the post fin-syn era.

Wall Street wasn’t enthusiastic about the deal either, as there was many questions whether or not this deal would pass regulatory muster, even though AT&T and TimeWarner insist there is no overlap in businesses between them (of course, Comcast and Time Warner Cable said the same thing.) The Department of Justice would likely take a look at the deal, and the FCC could get involved as well – given TimeWarner does own one TV station in Atlanta – WPCH-TV (the former WTBS), though the station is operated in a local marketing agreement with Meredith Corp. CBS affiliate WGCL-TV.

The first hearing on the proposed takes place on December 7, held by the Senate Judiciary Committee with AT&T CEO Randall Stephenson and TimeWarner CEO Jeff Bewkes.  AT&T and TimeWarner officials say this deal is structured similar to the NBC-Comcast merger in 2010, which saw both companies agree to concessions in order to win over regulators – something they obviously would have to do as well.

The deal is being done as numerous changes are taking place in the TV ecosystem. For one, more and more viewers are cutting the cord (a term for getting rid of cable) and streaming shows due to the escalating costs of cable. Second, more viewers are taking advantage of OTT, a.k.a. “over-the-top” offerings, watching content through the Internet.

In addition, the AT&T/Time Warner merger could influence other sector in the media industry. For one, the marriage could drive up sports rights at a time as more viewers are cutting the cord. Also, Disney could make a defensive move in order to keep up with AT&T/TimeWarner, whether if it is buying Twitter or some other tech property. The NFL could be another battleground, as AT&T has invested heavily in Sunday Ticket. But football’s declining ratings could have an impact.

In terms of advertising,  AT&T already floods the Chicago market (especially in daytime) with spots for its U-Verse service, though its future is unknown. DirecTV is a prominent national advertiser and focuses heavily on sports telecasts. Also, AT&T mobile customers can watch DirecTV through their device if they are either AT&T and DirecTV customers. And while AT&T has refused to participate in the cell-phone wars for the most part (with Sprint, Verizon, and T-Mobile), it can now boast something its competitors can’t  – content its owns from Time Warner (though Verizon does have the exclusive rights to stream NFL games on mobile devices.)

Are consumers going to benefit from an AT&T/TimeWarner merger? While it may make access to content easier (especially TimeWarner’s), customer service would suffer – and Comcast is a prime example.

Right now, chances of this going through are 50/50. Judging by the almost universally negative reaction, chances of the AT&T/TimeWarner deal going through are likely lower – far lower. But we said the same thing about the Comcast-NBC deal – especially being approved during the Obama administration – and looked what happened.