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Why You Should Love the Merger of AT&T and Time Warner

Since a judge ruled last week in favor of the merger of AT&T and Time Warner, much of the commentary has been negative, claiming that the acquisition will create an overly dominant powerhouse that owns both distribution (pipes) and content. Insight Tuesday readers have known for years that I am all for free markets and the ability for competition to work in the best interests of consumers and of society. So, I am happy about the ruling and believe that both consumers and marketers will be better off in the long run because of it.

First, the basic situation is this – AT&T, which owns pipes (mobile, high-speed internet, and satellite TV assets), is purchasing Time Warner, which owns content (HBO, CNN, and Warner Brothers). This is called a “vertical integration merger”, which is similar to the 1800s when railroads bought up the coal mines to fuel train engines and other productive assets to create efficiencies and grow profits. On the other hand, if AT&T wanted to buy Verizon, T-Mobile, or Sprint, that would be a “horizontal merger”, and it would lower the number of wireless network competitors from four players to three. Regulators generally block large-scale, horizontal mergers because they reduce the competitive field. However, they tend to allow vertical mergers because the competitive landscape doesn’t change for the legacy industries (in this case, AT&T is not reducing pipe competition or content competition).

Several prominent business commentators dislike the AT&T-Time Warner merger, arguing that it promotes an unfair advantage over competitors (like Netflix), as it creates a new powerhouse for a pipe-owner to own and control content. And, it will reward Time Warner’s CEO, Jeff Bewkes, with the richest severance package in U.S. corporate history. I think these arguments are defensive, weak, and irrelevant. Here’s why I believe the merger makes sense for consumers, for marketers, and of course, for AT&T:

 

The Merger Makes Sense for Consumers
The pre-baby boomer generation grew up with Warner movies (part of the deal). For 25 years, boomers loved HBO (also part of the deal). If you have enough money, like Apple does, you can buy or create quality content and deliver it on your platforms. Netflix may be great, but I think much of its content is mediocre and only a small percentage of it is very good. So, bring on the competition. With the AT&T-Time Warner merger, consumers will win with more choices of better quality content at lower costs.

 

The Merger Makes Sense for Marketers
Marketers need choice in their advertising mix. Google and Facebook control most of the world’s digital advertising, and Amazon is likely to pursue a piece of that pie. Few players can act as a counterbalance. AT&T-Time Warner will add another powerhouse to challenge the market’s leaders. And if Comcast (which already owns NBC-Universal content) also buys Fox, it will create a global footprint for US-based companies to compete in a hyper-growth global market. Marketers will triumph in this environment, which will create more competition and accountability in the advertising options they choose to buy.

So, contrary to many of the opinions out there, I say that the AT&T-Time Warner merger is a win-win for consumer and for marketers. I also think it is imperative for AT&T’s future.

 

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The merger is a way to maintain a relationship with consumers who have been “cutting the cord” for years. The landline phone business is dead and the cable TV to-home business is highly fragmented with declining prices underway. Consumers have demonstrated that they want quality content and high-value consumer experience without paying a fortune. Netflix is delivering on this and has used AT&T’s, Verizon’s and Comcast’s pipes to grow to 125 million subscribers worldwide. Will AT&T turn down a small piece of the Netflix annuity by excluding it from their pipes? No. Will they try to improve the quality and quantity of expensive content that consumers want, and in doing so, compete with Netflix? Yes. That’s co-opetition.

AT&T is also fighting competition on all sides. Most recently, T-Mobile and Sprint announced a horizontal merger to rival AT&T and Verizon. More importantly, AT&T needs to maintain relevance, as the advertising model that has upheld original television programming and content has lost market share to digital and mobile platforms. In 2017, Google and Facebook drew in approximately half of all worldwide digital advertising revenue. AT&T must compete with these massive players, and can only do so by owning quality content assets which are both subscriber and advertising dependent.

Marketing Agency Blog Post Author of Why You Should Love the Merger of AT&T and Time Warner

June 19, 2018
Written by Tom Sullivan

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