http://www.foxbusiness.com/markets/2016/10/22/at-t-time-warner-deal-start-new-media-industry-consolidation.html
AT&T-Time Warner Deal the Start of New Media Industry Consolidation?
Published October 22, 2016
The tie-up of AT&T Inc and Time Warner Inc, bringing together one of the
country's largest wireless and pay TV providers and cable networks like HBO,
CNN and TBS, could kick off a new round of industry consolidation amid massive
changes in how people watch TV.
Stocks of some programmers that could attract interest rose sharply on Friday
as the deal of the year came together. Discovery Communications Inc gained 3.6
percent, AMC Networks Inc rose 3.9 percent and Scripps Networks Interactive Inc
jumped 5.6 percent.
Media content companies are having an increasingly difficult time as standalone
entities, creating an opportunity for telecom, satellite and cable providers to
make acquisitions, analysts say.
Media firms face pressure to access distribution as more younger viewers cut
their cable cords and watch their favorite shows on mobile devices.
Distribution companies, meanwhile, see acquiring content as a way to diversify
revenue.
"The industry needs to consolidate," said Salvatore Muoio, whose firm invests
in a number of media companies, including Time Warner. "You have a lot more
competition from the likes of Netflix, Amazon and Hulu."
AT&T said late Saturday it will buy Time Warner for $85.4 billion in a
combination of cash and stock, forging the biggest deal in the world this year.
It expects to close the acquisition by the end of 2017.
AT&T chief executive Randall Stephenson said the deal "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."
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 Saturday.
But the deal and others will need to pass the scrutiny of regulators, who have
raised increasing concerns about media mergers.
'SIGNIFICANT STRESS'
Shares of Walt Disney Co, often thought of as a leader in content, are down 16
percent for the past year, noted Richard Greenfield, analyst at BTIG, who said
the industry is under "significant stress."
Earlier this month, Disney Chief Executive Robert Iger highlighted the growing
importance of distribution for content companies.
"The biggest thing that we're trying to do now is figure out what technology's
role is in distributing the great content we have," Iger told attendees at a
luncheon held by the Boston College Chief Executives Club.
Former Federal Communications Commission (FCC) Chairman Julius Genachowski, a
partner at the Carlyle Group, said a AT&T-Time Warner deal "and other big
potential deals reflect the landscape that's changing dramatically from wired
to wireless with big changes in consumption of video particularly among
millennials," he said.
The deal will face serious opposition.
Republican presidential candidate Donald Trump on Saturday vowed flatly to
block a deal if elected.
"As an example of the power structure I'm fighting, AT&T is buying Time Warner
and thus CNN, a deal we will not approve in my administration because it's too
much concentration of power in the hands of too few," Trump said.
Senator Edward Markey, a Massachusetts Democrat, also raised serious concerns.
"In the telecommunications market, we need more competition, not more
consolidation. We need a telecommunications market where pay-TV gatekeepers
don't favor their own content providers," Markey said. "Less competition has
historically resulted in fewer choices and higher prices for consumers, and
this deal should be assessed with consumers, competition and choice in mind."
AT&T said the Justice Department will review the deal but said it is unclear if
the FCC will also have to approve the deal since the companies haven't decided
"which FCC licenses, if any, will be transferred to AT&T in connection with the
transaction."
CONSOLIDATION TREND
Barclays analyst Amir Rozwadowski said distributors could increasingly look to
buy content. "Companies that traditionally ran their businesses in 'siloed'
environments are now expanding their reach into tangential markets in order to
seek out new growth and bundling services in order to reduce churn," he said.
Cable company Comcast Corp kicked off the trend with its acquisitions of
NBCUniversal in 2011 and more recently of DreamWorks Animation in a bid to
become a massive force that controls how television shows and movies are made
and delivered to viewers.
Comcast's acquisition was in part aimed at diversifying its business out of
cable.
AT&T has already made moves to turn itself into a media powerhouse, buying
satellite TV provider DirecTV last year for $48.5 billion. It also entered into
a joint venture, Otter Media, with the Chernin Group in 2014. The venture
invests in media businesses and has rolled out video streaming services
targeted at millennials.
Meanwhile, Verizon Communications Inc, has made a number of content
acquisitions, including AOL. It has announced plans to buy internet company
Yahoo Inc but has indicated it may renegotiate following a breach of Yahoo user
email accounts.
As its bread-and-butter wireless operations struggle in a saturated phone
market, Verizon had said in July it would buy Yahoo's core business for $4.83
billion to drive growth in advertising and media.
But some analysts said questions persist about the success of big vertical
deals. U.S. regulators will insist on significant conditions as part of any
approval that would limit the synergies from any deal, they said, noting that
in 2011 Comcast was forced to give up day-to-day control of video website Hulu
in order to buy NBC, and that it had to make NBC programs available to other
streaming services.
"Vertical integration between programming and distribution in particular raises
a number of issues: DirecTV, for instance, might favor Time Warner content,
crowding out or refusing to carry alternative and independent programming that
viewers might prefer," said John Bergmayer, senior counsel at advocacy group
Public Knowledge.
Stephenson told reporters Saturday that the deal "is a vertical merger in its
pure sense. Time Warner is a supplier to AT&T and we are combining with a
supplier."
As a result, he added, "there's no competitor being removed from the
marketplace, there's no competitive harm that is being rendered by putting
these two companies together. So any concerns by the regulators, we believe
will be adequately addressed by conditions, that's our anticipation."
(Reporting by David Shepardson, Malathi Nayak and Diane Bartz in Washington,
Jessical Toonkel in New York and Subrat Patnaik in Bengaluru; Editing by Peter
Henderson, Meredith Mazzilli and Mary Milliken)