The decades’ largest media merger – Implications?
29 June 2018
Since the last blog post – focus M&A’s on the global media market – the merger between AT&T and Time Warner has been approved and the bidding war between Disney and Comcast over 21st Century Fox has escalated to the next level. Today, we take a closer look at the new giant AT&T and possible implications of its merger with Time Warner.
On June 12, AT&T’s $85 billion bid on Time Warner was approved by the US District Court. The merger was finalized two days later, making it to one of the largest media mergers in history. AT&T, however, did not settle with this. Two weeks later, the company announced the acquisition of AppNexus, specialized in technology for online advertising (so called SSP – sell side platform). Sources say that the price tag was approx. $1.6 billion. Further, AT&T is reportedly planning to buy the remaining 50% of Otter Media, a company that invests in and launches OTT services globally.
Doubtless – it is the acquisition of Warner Media* that stands out. A lot has already been said about this mega merger, but likely the most interesting is to elaborate on the rationale “behind”. One of the prime reasons behind this vertical integration is to strengthen AT&T’s total offerings toward consumers and households. More content means more ways of packaging and pricing – thereby meeting the different consumer needs that now rapidly emerge on the digital media market. And AT&T did not waste any time highlighting its’ new content library, as it shortly after the merger announced the launch of its new streaming service Watch TV. The service includes 31 channels for live streaming and 15 000 TV shows and movies on demand. Watch TV is offered both as a stand-alone service, for $15 per month, and as a bundle included in the new AT&T wireless plans. Depending on which package, the customer also receives a $15 discount on either AT&T’s DirecTV, DirecTV Now or U-verse TV service. In addition, a premium wireless plan customer can also subscribe to one other premium video or music service** without any extra cost. This clearly highlights the AT&T strategy to bundle; different services and various price plans will hopefully keep churn low and retention high.
Since Time Warner was one of the largest global media companies, AT&T now has plenty of attractive content and channels – such as HBO (the home of Game of Thrones and Westworld) and CNN (the #1 news network among 18-34-year olds in the US). Moreover, Turner Broadcasting, one of Time Warner’s many assets, has three of the top five ad-supported cable networks in primetime among 18-49-year olds (TBS, TNT and Adult Swim) while another asset, Warner Bros., is the leading producer of film and TV programming with titles like Wonder Woman and Dunkirk. Set aside all the hours of high quality content, this also means even more consumer data. AT&T’s advertising and analytics business unit, which the newly acquired company AppNexus will be part of, can draw valuable customer insights from its TV, mobile and broadband services. This knowledge will enable even more personalized offerings, with higher accuracy going forward. This is another clear advantage in the highly competitive media market of today.
The diagram below illustrates the impressive revenue stream that AT&T and Time Warner had in Q1 2018. By totaling the two, the combined quarterly revenue amounted to $46 billion. In perspective, Comcast, which is the third largest media company in the world (based on revenue for the fiscal year 2017), and like AT&T offers TV, Internet and phone services, “only” reported a revenue half of AT&T and Time Warner (Comcast’s revenue was almost $22.8 billion in Q1).
Figure 1: A comparison of AT&T + Time Warner and Comcast in revenue, Q1 2018.
But as we have learned, Comcast is also looking to grow its business through mergers. It is in an ongoing bidding war with Disney for 21st Century Fox assets. Shortly after Mediavision’s last blog post on June 8, Comcast made a bid on Fox, which then has been raised by Disney to $71.3 bn – an increase of $18.9 bn compared to Disney’s initial bid in December. Disney took another step closer to closing the deal as US regulators earlier this week cleared the pending acquisition of Fox by The Walt Disney Company, but with the requirement to sell the Fox Sports Regional Networks. Simultaneously, Comcast and Fox are competing to acquire the European media company Sky.
So, the conclusion? Obviously one main strategy for both traditional media and operators is to merge vertically – all in order to improve long-term competitiveness, in a market that has increasingly been challenged by tech companies. The same development is seen locally with pending acquisitions between Telia and Bonnier Broadcasting as well as Tele2 and Com Hem, and with the previous discussions between TDC and MTG, which, however, were disrupted.