What does AT&T, Time Warner merger mean?

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Two people talk inside an AT&T store in New York City, October 23, 2016. REUTERS/Stephanie Keith - RTX2Q41X

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HARI SREENIVASAN, PBS NEWSHOUR WEEKEND ANCHOR: If federal regulators sign off, there will be a huge new media company on the landscape next year. Telecom giant AT&T will buy Time Warner for more than $85 billion in a half cash, half stock deal. AT&T, the nation’s second largest cell phone carrier, will gain control of TV networks like HBO, TNT, and CNN, and the Time Warner Movie Studio.

The boards of directors of both companies approved the deal last night, and say they expect it to close next year. This is the biggest deal of its kind since Comcast acquired NBC/Universal five years ago.

Joining me now for some more analysis and what it might mean for you is one of the “Wall Street Journal” reporters who broke the news, Keach Hagey.

So, why did they do this?

KEACH HAGEY, THE WALL STREET JOURNAL: Well, the reason is both companies are facing rapidly changing world, where basically your telephone is becoming your television. And they have both been scrambling to deal with that in different ways.

AT&T is facing slower growth on its side. They need to grow by acquiring businesses. As we’ve seen them do, they acquire DirecTV.

And Time Warner is struggling with the fact that people are migrating away from paying these big fat cable bills where a lot of their money comes from. They are going on to streaming services. They’re going on to Netflix and their business is being cramped.

And the other thing is, Time Warner is one of the prettiest girls at the dance. That’s what a lot of people call it, you know? They are a company that could be bought. And as the industry is facing this consolidation, they’re going to be the first one to go.

SREENIVASAN: So, now we have these titanic forces lining up much. We’ve got Verizon who bought AOL and is in the process of finishing up an acquisition of Yahoo. We’ve got Comcast, NBCUniversal, and then this. I mean, these are huge companies now that we didn’t really see a couple of years ago.

HAGEY: Wild. So, what we’re seeing is a wave of vertical integration, and it seems like regulators are kind of OK with that. They have been approving these deals whereas long as it is a supplier that you’re buying, not a direct competitor, that’s fine. These mergers have conditions on them. But generally speaking, that’s the way that folks are bulking up.

SREENIVASAN: Time Warner was bought famously by AOL before. It didn’t turn out to be a great deal. Has the community learned from what’s gone wrong and also, have the regulators learned from what’s happened in some of these acquisitions that didn’t make sense at least from the regulatory side.

HAGEY: Folks at Time Warner say what is different this time is that the distribution mechanism is so much more important to whether television succeeds or fails, right? Whether you watch a show, you need to be able to watch it on a mobile device. You need to be able to watch on demand. And the distributors have so much control over that, that it’s a little — it’s quite different than it was, you know, circa 2000.

As far as the regulators, we saw Comcast buy NBCUniversal, and the regulators did put some conditions around that, which when Comcast went and tried to buy Time Warner cable, they felt like that Comcast wasn’t really a perfectly good actor about those, and those conditions didn’t work out so well. And there were a lot of lessons to learned and there are a lot of people who said, you know, I don’t think that deal, Comcast/NBCUniversal would have been approved today.

So, we shall — we will have a very interesting year in front to see if this still gets approved.

SREENIVASAN:
So, other concerns from a consumer standpoint if I have, for example, an AT&T phone that I could have access to HBO for free. That’s great if I’m an AT&T consumer, but it might not be that great if I’m a T-Mobile customer.

HAGEY: That’s the central question, because in order to actually get synergies from this, when you don’t have overlapping businesses, you know, what’s the benefit to AT&T unless it can do something like that. However, there is a lot of– there is a general feeling from everyone that I’ve talked to that they’re not going to be able to do that, right? They’re not going to be able to have an offering where they have exclusive access to Time Warner content.

As Randall Stephenson, the CEO of AT&T, said on a call last night, Time Warner has built a great business out of selling its content to many distributors and it is going to continue to do that. Nothing’s going to change. We’ll see.

SREENIVASAN: All right. Keach Hagey from “The Wall Street Journal” — thanks for joining us.

HAGEY: Thanks for having me.

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