AT&T looks to the vertical integration model to deliver returns

Steve Case took to Twitter when he heard about AT&T’s proposed $85.4 billion takeover of Time Warner, coining a new hashtag: #DejaVu. The former chief executive of AOL knows a few things about buying Time Warner, having led the $164 billion purchase of the media company in 2000 in a deal widely regarded as the worst ever, given that it was swiftly followed by a $100 billion writedown. There is little chance of history repeating itself, despite Case’s wry tweet.

Randall Stephenson, AT&T’s chairman and chief executive, did not go into details about how he planned to turbo-charge Time Warner’s film and television programming but he made clear that it would help the company sell new products and services. “When we combine Time Warner content with our scale and distribution … we’re going to have something really special,” he said. It is unclear what that combination will look like. Stephenson said AT&T would be able to innovate more rapidly by owning its own content yet the company will still need to strike other licensing deals if the direct to consumer mobile and digital offerings it is planning are to be comprehensive. For example, an AT&T that owns Time Warner can offer classic cartoons from the Cartoon Network but none from Walt Disney. It can offer cable news from CNN but would need a separate licensing deal to also offer Fox News, which is owned by Rupert Murdoch’s 21st Century Fox. It can boast superheroes from DC Entertainment but will need an additional deal if it is to offer Iron Man, Captain America and The Avengers, which are owned by Disney’s Marvel Studios. The point is that vertical integration can only do so much.