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October 2016

With AT&T-Time Warner Deal Brewing, a Focus on Preserving CNN’s Integrity

In its 130-year history, AT&T has transitioned from a telegraph service to a wireless provider to a global communications behemoth. Now, one of America’s oldest corporations is about to take on what may be its trickiest identity yet: journalist.

Assuming its $85 billion merger with Time Warner is cleared, AT&T will soon find itself in charge of CNN, the cable news stalwart whose profitability — itself a crucial lure for suitors of Time Warner — relies on an international reputation for legitimate reporting. The difficulties of defending tough reporting and shielding journalists from powerful antagonists can be hard for any corporation to stomach. And while AT&T gained a foothold in the television industry by acquiring DirecTV in 2015, the company has no journalistic lineage, meaning its executives will have to face these challenges on the fly.

AT&T’s Deal for Time Warner Faces Tough Climate

AT&T’s deal to buy Time Warner sails toward two cresting waves of opposition: resurgent antitrust enforcement in Washington and politicians fired by a new bipartisan populist rage.

It is too early to know how regulators will treat the AT&T-Time Warner deal. But after several quiet years, President Barack Obama’s antitrust team has switched into high gear in response to a recent spurt of deal-making. This trend is likely to continue in the next administration, as both presidential campaigns have signaled unease with the AT&T deal and with economic consolidation more broadly. Justice Department antitrust enforcers say they have sunk eight would-be deals over the past year and are currently waging court fights over three more, including two big health-insurance mergers. In all, the Justice Department has stopped 43 deals over the past eight years, more than double the mergers blocked by the preceding Bush Justice Department.

AT&T Promises Innovation in Advertising With Time Warner Deal

AT&T executives say their proposed $85.4 billion acquisition of Time Warner would deliver innovation to advertising.

While ad industry executives love hearing such talk, they say it is unclear exactly what it could mean for them. The combination of AT&T and Time Warner would bring together huge amounts of viewer data with content, which could serve as a catalyst to make TV advertising a lot more targeted to individuals, similar to the way digital advertising is now. In addition, AT&T’s data from its 90 million wireless subscribers and DirecTV households could be leveraged to target people with ads across devices, including TVs, laptops and mobile phones, some ad executives speculate.

AT&T-Time Warner merger could be blessing in disguise for consumers

[Commentary] If federal authorities play this correctly, the AT&T-Time Warner merger actually could be beneficial for consumers.

What they should do is press the case for skinny bundles and a la carte channels.

Despite all the political posturing, I expect the deal ultimately to be approved. There’s not a lot of overlap in AT&T’s and Time Warner’s operations, so the most troublesome element is creation of a corporate behemoth of Monster Island proportions. To address that, the Justice Department and Federal Communications Commission almost certainly will impose a number of conditions to make the deal more palatable, including divestiture of some properties and commitments to play nice with other kids. Because a merged AT&T-Time Warner would cast such a long shadow over the telecom and media industries, a requirement that the company offer smaller, reasonably priced programming packages and break off popular channels on an a la carte basis could have a sweeping effect on other pay-TV players.

“It’s always the case that when one party does something that’s more pro-consumer, others will follow,” said John Bergmayer, senior counsel at the advocacy group Public Knowledge.

Vertical limit: AT&T-Time Warner’s upside needs magical thinking but the downside is limited

[Commentary] Splashy mergers and acquisitions in the media sector have a poor record. Maybe things will be different this time. But even if not, the risks to AT&T from this “bolt-on” acquisition are muted. AT&T believed that just contracting with television networks restrains technical innovation.

This has become important now that video consumption is migrating away from traditional television to smartphones. Research firm eMarketer thinks time spent on smartphone digital video consumption will have grown at a 21 percent annual rate between 2013 and 2018. It remains to be seen how AT&T can extract value from Time Warner without antagonising its competitors and regulators. The arithmetic of a 50/50 cash plus stock deal buys the company time as its thesis works itself out. Its own price-to-earnings ratio of 12 times is dwarfed by the 20 times it will pay for Time Warner. But with $40 billion of debt costing under 4 percent, and $1 billion in annual savings, AT&T should be able to maintain both its dividend (5 percent yield) and an investment-grade rating. Meanwhile AT&T’s rivals can do little.

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