The Other Merger

By: Brandon McClure

A lot has been said about the merger between Disney and 20th Century Fox. Speculation about what the future could hold for the IP it controls and what will happen with the companies it has a hand in. While all of this has been a hot topic for the public, another merger has slipped through relatively unnoticed. On October 22, 2016, it was announced that AT&T, the world’s largest telecommunications company, was in talks to acquire Time Warner for $85.4 billion.

The Disney/Fox merger is considered a horizontal merger, meaning Disney and Fox were direct competitors in the same market, that’s the largest difference between the two mergers in the entertainment industry. The AT&T/Time Warner merger is a lateral one, which means AT&T and Time Warner weren’t competitors, Time Warner was primarily a content creator and AT&T was a content distributer that delivered it through phones, computers and the like. Merging with Time Warner allows them to make both the content and the way you consume it.

The merger came about primarily due to declining ad revenue from television ads which was a result of many consumers “cutting the cord.” “Cutting the cord” is a popular term used in and out of the industry to refer to consumers canceling their cable and television subscriptions in favor of streaming services. Why pay upwards of $100 a month for multiple channels when you can pay $10 a month for a Hulu subscription. AT&T claimed that “merging was the only way they could survive”. This type of merger would allow them to compete with other content creators like Netflix and Amazon.

On June 12, 2018 Judge Richard J. Leon approved the merger. This was after the Justice Department’s second attempt to try and stop the merger by trying to prove that this merger would lessen competition within the market. The judge did not see enough evidence to prove this and allowed the merger to go through. A similar hurdle needs to be overcome by all major media companies looking to merge. They need to prove that, not only will there still be equal competition within the industry, but also a chance for a more lucrative one.

Shortly after the deal was finalized AT&T became the owner of properties like HBO, Warner Brothers Studio, CNN, Cartoon Network and others. Time Warner was renamed to WarnerMedia and John Stankey took over as CEO. John Stankey was an executive over at AT&T who oversaw the transition and integration of Time Warner.

In October of 2018, WarnerMedia announced that it will launch a, not yet titled, streaming service in late 2019, featuring content from its various brands. WarnerMedia already controls a number of streaming platforms such as HBONow and DC Universe, plus a 10% stake in Hulu. It is unclear at this time if they intend to fold the other services in with this new one or allow each to operate independently. A service like the one they are proposing seems like a necessary step since the content in WarnerMedia’s library has a lot of value to consumers, such as Harry Potter and The Lord of the Rings. No doubt, Disney’s upcoming service is a factor in this decision as well.

AT&T recently announced a major reorganization of its broadcasting assets that effectively dissolves Turner Broadcasting. Two new divisions have been created within WarnerMedia: WarnerMedia Entertainment and WarnerMedia News & Sports. WarnerMedia Entertainment would consist of HBO, TBS, TNT, the upcoming streaming service, etc. while WarnerMedia News & Sports would have CNN Worldwide, Turner Sports, and the AT&T SportsNet regional news. Properties such as Cartoon Network, Adult Swim, Boomerang, Turner Classic Movies, and Otter Media will be moved under Warner Bros. proper.

Many more changes are expected to come to how WarnerMedia creates content and how AT&T distributes content. AT&T has taken a pledge to keep its newly acquired content on rival platforms for at least seven years. At this time AT&T wants to make sure viewers see its content on as many platforms as possible, which includes rival companies. It wouldn’t make business sense for AT&T to withhold that content from its competitors.

Netflix and Amazon have changed the industry so rapidly that it’s becoming increasingly difficult to keep up for major studios. To the point where many feel like merging is the only way to survive the changes being made. In a world where content and IP is the name of the game, controlling the content and the way its consumed puts AT&T a step above the competition.

 

 

 

Follow Brandon at @BTMcClure or listen on the Fake Nerd Podcast and Mythellaneous

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