“AT&T Agrees to Buy Time Warner for Around $80 Billion” (nytimes) confuses me. If you have a company full of experts on how to run telecommunications networks, market mobile phones to consumers, etc., what is the business rationale for acquiring a movie studio and some cable TV channels? How will the two seemingly at-best-loosely-related enterprises produce more profit for investors if combined into one monster corporate entity? Time Warner has HBO and AT&T has cable wires to some homes, but is there an Econ 101 argument where somehow there is more overall profit in the same company owning both the channel and the wire? Where does it stop? Should AT&T also buy Samsung because the wire terminates in a Samsung TV? Buy the apartment complex because the Samsung TV is mounted on an apartment wall? Buy Apple because consumers use iPhones on their mobile network?
12 thoughts on “What is the business rationale for AT&T and Time Warner merging?”
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Same reason Verizon bought AOL, and Comcast bought NBCUniversal. Their mortal fear of being relegated to mere dumb pipes (and thus irrelevancy).
The idea is to increase AT&T’s valuation for when it’s bought out. Salesforce is going to buy AT&T. Then Uber is going to buy Salesforce. Then Google is going to buy Uber. Pyramid economics are the new economy.
As you suggest, the business rationale is just the same as when AOL bought Time Warner.
“what is the business rationale for acquiring a movie studio …”
To meet actresses.
In Raleigh they compete furiously against each other in the cable business. They’ve both buried fiber in my neighborhood in the past 12 mos. Google had plans to do the same, but now has reconsidered and last mentioned some sort of short-range wireless connection in lieu of taking fiber into the neighborhoods.
Around here Time Warner is possibly the most hated company ever. Customer service is virtually nonexistent. Makes BellSouth of the 1970s look like the wait staff at Jean Georges.
Presumably they want to avoid double marginalization? Just guessing. http://www.mruniversity.com/courses/development-economics/double-marginalization-problem
My comment above is not relevant. I just figured out that Time Warner Cable is not part of Time Warner.
Investment banks will be able to charge lots of fees, and executives will be able to dump a whole lot of stuff in one time costs and thereby justify enormous bonuses. Sounds like a pretty good rationale to me.
The other rationale is copyright enforcement. A single vertical entity will make it easier for the content owner to bill customers of the data network for illegal downloads. It’ll be the same as a bandwidth surcharge.
I am pretty sure the research shows large mergers do not, on average, add to shareholder value. I am always skeptical when company in business X wants to get into business Y. They usually don’t know what they are doing and somehow think making money is easier in another business. It isn’t.
A good example is when hardware companies buy software companies. This is almost always disastrous. The cultures are too different.
Presumably, you can push your content at a discount compared to Netflix, etc.? When your content is a first class citizen of your network, you make money on both the content and the network, to the detriment of other content providers.
From Wired.com this afternoon …
Days after agreeing to acquire media giant Time Warner, AT&T has revealed that its upcoming internet television service, DirecTV Now, will offer 100-plus channels for a mere $35 a month.
Previously, the company said that DirecTV Now, due next month, wouldn’t undercut the steep price of cable television. But a $35 price tag is very much a shot across the bows of cable companies like Comcast, and in revealing the new strategy at a conference in Southern California, AT&T CEO Randall Stevenson said as much. “It’s clear what customers want. They want premium content in a mobile environment,” Stephenson said. “Our goal is to drive prices down.”