Who will win
the "Game of Thrones"? It may just be AT&T.
The massively
popular show, the HBO channel it runs on and a host of other entertainment
properties including CNN, Cartoon Network and movie studios Warner
Bros. and
New Line Cinema -- all part of Time Warner -- will join the telecommunications
giant as part of a $85.4 billion deal that ranks among the biggest acquisitions
of all time.
AT&T
confirmed it would acquire Time Warner in a half-stock, half-cash deal that
values its shares at $107.50 apiece. The companies said they expect the
transaction, which was buzzed about for the last three days, to be completed by
the end of 2017.
On Friday,
Time Warner's shares closed at $89.48 each, while AT&T's closed at $37.49.
The deal marks
the next step in an audacious plan by AT&T to control several key aspects
of your life. With Time Warner in the fold, AT&T could theoretically serve
you wireless and home internet service through its traditional business,
deliver satellite TV via DirecTV and produce many of the television shows and
films you watch.
"We can
deliver a very different experience for our customers," AT&T CEO
Randall Stephenson said in a conference call with reporters.
For Time
Warner, the deal answers the pressures that media companies have felt to
consolidate. Rupert Murdoch's 21st Century Fox had previously sought to buy
Time Warner two years ago. CEO Jeff Bewkes said on the same call that AT&T
gives his business extra heft to change how video is distributed.
"This
will supercharge our creative abilities," he said.
But consumer
advocates warn that the deal could lead to higher prices down the line. Sen. Al
Franken (D-Minn.) said the proposed deal raises "immediate flags"
about consolidation in the market.
The
combination of a service provider and a media company brings to mind Comcast's
acquisition of a controlling stake in NBC Universal in 2011 (it completed the
takeover two years later). Comcast may have been in mind when these two
companies started talking.
"AT&T's
most formidable challenge in coming years will come from Comcast," said
New Street Research analyst Jonathan Chaplin in a note that came out before the
deal was officially announced. "The cable companies are already pressuring
AT&T in broadband, pay-TV and enterprise markets, and wireless will be
next."
The deal also
harkens back to AOL's $165 billion takeover of Time Warner.
But AT&T
is hoping history doesn't repeat itself -- that combination proved to be one of
the worst in
AT&T
doubles down on video
Wireless
leaders Verizon and AT&T have both looked to media as a new opportunity as
their core business slows, thanks in part to smaller rivals T-Mobile and Sprint
picking away at their customers.
But where
Verizon has opted for a more conservative approach, scooping up a
past-its-prime AOL for $4.4 billion and the wounded Yahoo for $4.83 billion,
AT&T has bet much bigger.
Last year,
AT&T spent $49 billion to acquire DirecTV and become the nation's largest
pay-TV provider. How does it follow that up? With something even bigger.
Time Warner
will likely play a critical role in AT&T's plan to greatly expand how it
delivers video. Beyond its traditional U-Verse TV and DirecTV services, the
company is set to launch an online streaming service called DirecTV Now that
caters to cord cutters, or people who don't pay for a cable TV subscription.
The company has spent the last year striking content deals with media companies
for its service.
That streaming
service is one way AT&T wants to ensure that younger consumers will still
flow its way. A study by research firm Parks Associates found that nearly a
quarter of millennial households just subscribe to broadband and an
over-the-top video service like Netflix.
Time Warner
immediately gives AT&T a wealth of content, including the prized HBO
premium channel, which boasts "Game of Thrones," "Silicon
Valley" and "Veep" as hit shows. On the cinematic side, Warner
Bros. is home to the "Harry Potter" franchise and DC films like
"Batman v Superman: Dawn of Justice."
A hit to your
wallet?
Not everyone
is enamored with the deal. Critics were out early, issuing statements before
the official word arrived. Most expressed concern about the further
concentration of power in the media business, with AT&T both controlling
the production and distribution of entertainment.
"As the
(Federal Communications Commission) has found in past mergers, combining
valuable content with pay-TV distribution causes harm to consumers and competition
in the pay-TV market," Matthew Polka, CEO of the American Cable
Association, said in a statement Saturday.
Others warned
that these types of deals could have a real impact on your cable bill.
"Any time
you hear media executives talking about synergies, throwing around the
business-babble that always accompanies these rumors, you know it's time to
grab your wallet and hang on tight," said Matt Wood, policy director for
consumer advocacy group Free Press.
AT&T will
have a lot to juggle. Beyond DirecTV and Time Warner, the company has invested
more than $4 billion combined to buy Nextel Mexico and Iusacell to expand its
wireless service south of the border.
It's also
unclear whether regulators will like the deal. One of AT&T's biggest flops
was the failed takeover of rival T-Mobile, which hit a wall with regulators.
Republican nominee Donald Trump said Saturday that he would kill the
AT&T-Time Warner merger if he were president.
Stephenson
dismissed any concern that the deal would fall through, noting "this is
not the T-Mobile deal."
"No
competitor will be removed from the marketplace with this deal," he said
on a call, noting that two similar companies aren't combining.
The US
government also heavily scrutinized the Comcast-NBC Universal merger, but it
ultimately approved that deal. Cnet
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