AT&T says it is bringing content and customers further together, but some analysts say the strategy doesn't mean guaranteed success.
Now that AT&T has confirmed its plans to acquire media and entertainment company Time Warner for $85.4 billion, the focus has shifted to whether the deal will ultimately receive the approval of U.S. regulators and how it will affect the overall telecom and communications segments.
AT&T announced the pending acquisition on Oct. 22 as a way for the two companies to bring content to customers on any screen as an alternative to existing cable providers, while also offering more choices to users seeking additional over-the-top and mobile viewing options.
However, four analysts who spoke with eWEEK about the acquisition are split on whether the deal is a good one for the companies and for their customers.
"The AT&T-Time Warner deal is straight out of AT&T's recent consumer playbook, which has been focused on entertainment and building value by combining assets to create unique consumer benefit," including the company's July 2015 acquisition of DirecTV for $48.5 billion, Jan Dawson, chief analyst of Jackdaw Research, told eWEEK. "However, the rationale for the Time Warner deal is much less obvious, and risks repeating history as it borrows from the rationale for the AOL Time Warner deal 16 years ago."
Part of his concern, said Dawson, is that the deal is "motivated by AT&T's desire to offer unique content and content features to its TV and wireless customers," which is "where the rationale feels thin."
Instead of benefiting AT&T, "the problem with distributors buying content companies is that content benefits most from receiving the broadest possible reach, while distributors are always incentivized to make [the] reach narrower through exclusives," he said. "This creates massive strategic tensions that are almost impossible to resolve—AT&T risks either hurting Time Warner by restricting access to its content, or making its own differentiators too narrow out of fear of hurting Time Warner."
What AT&T is hoping to find in the acquisition are synergies that will make both companies stronger, but "at $84 billion, AT&T is paying a massive amount for minimal synergies and a thin layer of theoretical differentiation," said Dawson. "We need look no further than Comcast's acquisition of NBCU to see a recent example of the failure of a content-distribution tie-up to deliver any meaningful synergies."
Rob Enderle, principal analyst of Enderle Group, agreed. "Time Warner has a lot of content properties and content certainly hasn't helped Sony or Verizon, so I wonder if the execs at AT&T are trying to cover up [that] they don't really know how to grow the company anymore," said Enderle. "Just adding complexity when you are facing a saturated market rarely works."
U.S. regulators will also have much to say about the proposed deal, he added. "They may struggle with this because AT&T is so large, but if you don't at least try, you don't get anything done."
Other analysts say the acquisition of Time Warner by AT&T is a good move.
"This will give AT&T much more heft and leverage, particularly when it comes to content," said Dan Olds, principal analyst with Gabriel Consulting Group. "Content creators and providers are king in today’s media-rich climate and gaining properties like HBO, CNN, plus movie and TV show production companies, will give AT&T a huge amount of content to monetize on their platforms."
AT&T's DirecTV move last year was a similar purchase that continues to yield benefits for the company, he said. "The DirecTV moves gives them a route directly into the home and something that they can combine with their phone business to make compelling offers to end users."
The carrier has "done a decent job on this" acquisition proposal with Time Warner so far, said Olds, "but there's no subtle way to mount a deal of this size—it’s going to get a lot of attention no matter what" from regulators.
Much of the coming reaction from antitrust and other regulators "will at least somewhat depend on the mood in Washington after the election," he said. "This is a massive merger of name-brand companies and with the current climate—which is at least somewhat anti-big business—I think the regulators will be examining this deal very closely."