Who really stands to gain from AT&T’s acquisition of Time Warner?

AT&T Inc.’s $85 billion acquisition of Time Warner has brought global media & entertainment companies in the limelight. On October 22, AT&T Inc. (NYSE: T) announced acquisition of Time Warner Inc. (NYSE: TWX) in a stock-and-cash transaction valued at $107.50 per share.

The agreement has been approved unanimously by the boards of directors of both companies. The deal combines Time Warner’s vast library of content and ability to create new premium content that connects with audiences around the world, with AT&T’s extensive customer relationships, world’s largest pay TV subscriber base and leading scale in TV, mobile and broadband distribution.

Blurring lines

Apparently the deal looks like telecom companies are becoming media companies. But scratch the surface and you’ll find distinct trends. While this is not the first of its kind of deal, what’s significant is the merging or blurring lines between media, telecom, Internet and movies.

The world has seen how global firms started as Internet ventures and then gradually transforming into new media companies. Take the case of Google, Facebook, Amazon and Netflix, creating an enormous amount of consumable content, and challenging the traditional domain of TV and movie companies.

“AT&T’s planned acquisition of Time Warner is a reflection of the increasingly blurred lines between the Internet and media businesses. The acquisition is expected to marry partners in distribution and content. This means new revenue streams for a company that is already far-reaching with its TV, Internet and mobile services into American homes,” says the managing director at Carat UAE & Lower Gulf, Ramzi Haddad.

The CEO of J. Walter Thompson MENA, Vatche Keverian, concurs: “Owning content allows telcos to create experiences that rivals cannot compete with, which is also a key driver of subscriber retention.”

Who wins?

The content landscape is a big pie, Keverian adds. And not surprisingly, many players are looking to take a bite of it – just look at the likes of Netflix, Google, cable TV companies getting in on the game. But telcos are uniquely positioned to combine both connectivity and compelling content – giving them license to play a greater and wider role in the emerging online video value chain. “The recent AT&T–Time Warner merger brings this even more into focus. Whilst not the first of its kind, it certainly is the biggest,” Keverian says, alluding to two other similar moves: Comcast’s acquisition of NBC Universal and French telco Orange’s move into producing content.

“As audiences demand better content from brands, it paves the way for even more telcos to follow suit and deliver attractive, compelling content to open up valuable new platforms and revenue streams,” he adds.

Now what?

Telecom companies like AT&T, Haddad points out, know that eventually they will reach a cap from data usage revenues on mobile and that is the main reason why they are embracing opportunities in the content field because that will open up opportunities to generate additional revenue from content they now own, from users they already reach.

“Media agencies with content management and publishing divisions will stand to gain from such deals, because they will be more experienced than other agencies in identifying opportunities to connect that content to their clients’ brands,” he adds.

All said and done, one thing is for sure: the Time Warner-AT&T deal is considered to be a part of a revolution in the TV world, but it’s something that hasn’t happened yet in the Middle East region. It has set the ball rolling for a programmatic future of TV content that is more appropriately delivered according to user preferences – something that will open up new opportunities for media agencies.

A rich selection of production and distribution

IDC report breaks down the AT&T–Time Warner deal.

According to IDC, the AT&T acquisition of Time Warner adds several content and entertainment assets to AT&T’s portfolio of wireless and fixed services. The 2015 acquisition of DirecTV provided AT&T with a strong content delivery vehicle. The current deal will provide AT&T with Warner Brothers Entertainment (television, feature film, home video and video game productions and distribution); the HBO family (including HBO Now and HBO Go); and Turner (including CNN, TBS, TNT and the rights to MLB, NBA and March Madness broadcasts), as well as investment in OTT and digital media such as Hulu, Bleacher Report, Fandango and CNN.com.

At the end of the day, AT&T is purchasing a rich selection of content production and distribution. For AT&T, Time Warner will bring further diversification to the carrier’s revenue picture. In the 1H16, AT&T posted revenues of approximately $81.1 billion and with Time Warner posted revenues of $14.3 billion. Within a combined entity, Time Warner would represent approximately 15 per cent of revenue contribution. In addition to content, there is also some diversification outside the United States including Latin America, where Time Warner owns a majority stake in HBO Latin America – an OTT service available in 24 countries.

The deal also has the potential to make AT&T one of the most leveraged companies on the planet. Taking into account Time Warner’s debt, the deal is actually worth $108.7B. With debt already at approximately $119B, there’s a strong likelihood that the stock and cash Time Warner deal would add considerable debt onto the carrier’s existing debt load. The deal was approved, unanimously, by the boards of both companies, but still requires approvals from Time Warner shareholders. AT&T announced the deal is expected to close by the end of 2017. The success of the acquisition also depends upon approvals from the US Department of Justice and the Federal Communications Commission.

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