AT&T’s $85.4 billion deal to purchase of Time Warner represents a massive new bet on synergy between enormous companies that distribute information and entertainment to millions of consumers and those that produce it.
Thewould combine a telecom giant that owns a leading cellphone business, DirecTV and an internet service with the famed company behind HBO, CNN and some of the world’s most popular entertainment, including “Game of Thrones,” the “Harry Potter” franchise, Bugs Bunny cartoons and professional basketball.
It’s the latest stunning media acquisition by a major cable or phone company – such as Comcast’s 2011 purchase of NBC Universal and Verizon’s 2015 buyout of AOL and July agreement to acquire Yahoo -- aimed at shoring up businesses upended by the internet.
But regulators would have to sign off on the deal – and that’s no sure thing, considering the criticisms already emerging around the megamerger’s announcement on Saturday after days of rumblings a corporate combo was in the works.
The prospect of another media behemoth on the horizon has already drawn fire on the campaign trail. Speaking on Saturday in Gettysburg, Pennsylvania, GOP presidential nominee and Donald Trump vowed to kill a proposal to combine AT&T and Time Warner if elected because it concentrates too much “power in the hands of too few.” On Sunday, the Trump campaign upped its populist media-bashing ante with a vow to channel Progressive-era trustbuster Teddy Roosevelt and “break up the new media conglomerate oligopolies.”
Sen. Al Franken, a Minnesota Democrat, said the proposed merger “raises some immediate flags about consolidation in the media market” and said he would press for more information on how the deal will affect consumers.
And Sen. Bernie Sanders, an independent from Vermont, took to Twitter to lash out against the deal: “The administration should kill the Time Warner/AT&T merger. This deal would mean higher prices and fewer choices for the American people.
John Bergmayer of the public-interest group Public Knowledge, which often criticizes media consolidation, warned of harm to consumers from the AT&T takeover. He said, for example, AT&T might let wireless customers watch TV and movies from Time Warner without counting it against their data caps, which would make video from other providers less attractive.
Privacy advocates darkly warn of expanding corporate control of vast amounts of consumer data tied to people’s digital reading, viewing and spending habits.
“This is all about tracking and targeting us regardless of whether we use a mobile device, PC or TV,” Jeffrey Chester, executive director of the Center for Digital Democracy in Washington, D.C., said in a statement. “Through the growing capability of mobile phones to follow and geo-target us everywhere we go — the supermarket, while in a car, or even on the street, these new … giants are extending their powerful digital tentacles further into our lives.”
There also are concerns about the quality of the content that would be produced under a new owner that only a generation ago was a telephone monopoly.
“Any merger motivated by incentives to become a more powerful market player, accompanied by hard-to-prove claims of synergies, will get a very close look from competition enforcers,” predicted Diana L. Moss, president of the American Antitrust Institute in Washington.
One area regulators should focus, Moss suggested in a statement: “The critical question of how all-important diversity in the delivery of political, social and economic information and commentary will be affected by AT&T-Time Warner’s unified control over content and distribution.”
Stock analysts at Credit Suisse predicted in a recent note to investors a “lengthy antitrust review” of AT&T and Time Warner and an “uncertain outcome” for a stock-and-cash deal financed with heavy borrowing by AT&T.
After all, the Obama administration has recently nixed other big mergers in a variety of industries, including deals pitched by AT&T and T-Mobile, Sprint and T-Mobile, Pfizer and Allergan, and Halliburton and Baker Hughes. And Hillary Clinton could prove an even tougher act should she win in November and take power in January.
A lengthy Democratic primary campaign against the socialist Sanders pulled her sharply left on regulating against corporate might and influence in America. She even promised last year in an op-ed column in Quartz to “beef up the antitrust enforcement arms of the Department of Justice and the Federal Trade Commission” and “foster a change in corporate culture that restores competition to the marketplace.”
AT&T said in a news release that the merger with Time Warner would offer consumers an “alternative to cable and other video providers” that would deliver better value and more choices in news and entertainment offerings. The company also described the media industry as “lightly regulated compared [with] much of AT&T’s existing operations.”
CEO Randall Stephenson, who will run the combined company, expressed confidence in a conference call with reporters over the weekend that this proposed buyout would past muster in Washington, according to CNNMoney.
“This is not the T-Mobile deal -- there is no competitor being removed from the marketplace,” Stephenson insisted. “Time Warner is a supplier to AT&T. It’s a classic vertical merger. They’re always dealt with by concessions and conditions. That’s what we anticipate happening here.”
He better be right: AT&T must pay $500 million to Time Warner if the merger gets blocked by regulators, the Wall Street Journal reported, citing unnamed sources believed to be familiar with the deal’s terms. Likewise, Time Warner would pay AT&T a $1.7 billion “breakup fee” if another company swoops in to beat AT&T’s cash and stock offer, the Journal reported.
Fortune magazine’s Dan Primack reported Sunday that the two companies had planned to complete their merger agreement and announce it after the presidential election, but news of a pending deal leaked and an agreement had to be rushed to completion over the weekend.
Why is so much money at risk? Network-owning companies like AT&T are investing in media to find new revenue sources and ensure they don’t get relegated to being just “dumb pipes.” After its attempt to buy wireless competitor T-Mobile was scrapped in 2011 following opposition from regulators, AT&T doubled down on television by purchasing satellite-TV company DirecTV for $48.5 billion. AT&T is expected to offer a streaming TV package, DirecTV Now, by the end of the year, aimed at people who have dropped their cable subscriptions or never had one.
The phone giant has to contend with slowing growth in wireless services, given that most Americans already have smartphones. And it faces new competitors for that business from cable companies – Comcast, for instance, plans to launch a cellphone service for its customers next year.
Amy Yong, an analyst at Macquarie Capital, said that AT&T and other phone and cable companies feel they have to act because the threats to their business seem to be coming from every direction. “At the end of the day, these companies are trying to compete with Google and Facebook and Amazon, not just traditional competitors,” she said. “You see Google pivoting into wireless.”
Even if the AT&T deal overcomes opposition in Washington, it’s possible that regulators might saddle the combined company with so many conditions that the deal no longer makes sense.
“It’s not hard to imagine what you can do on paper: They would keep HBO exclusive for only DirecTV subscribers, or only make TNT or TBS available over AT&T Wireless,” said analyst Craig Moffett of research firm Moffett Nathanson, referring to Time Warner networks. “But as a practical matter, those kinds of strategies are expressly prohibited by the FCC and antitrust law.”
Shares of AT&T, as is typical of acquirers in large deals, fell on reports of a deal in the works on Friday, ending the day down 3 percent. But the prospect of more media acquisitions sent several stocks soaring Friday. Netflix and Discovery Communications each jumped more than 3 percent, for instance.
Time Warner rose nearly 8 percent on Friday, and is now up 38 percent since the start of the year.
AT&T and Time Warner noted in their merger announcement that they expect the transaction to close before the end of next year. Considering the many competing stakes involved, it could prove to be an excruciating 14 months -- for top executives at both companies, their nearly 300,000 employees, and shareholders sitting on investments currently valued at hundreds of billions of dollars.