As AT&T embarks on a long process to acquire Time Warner Inc. for $85 billion, the implications for other programmers run deep.
During today’s call to discuss the proposed deal, AT&T CEO Randall Stephenson described how the tie-up with Time Warner will increase the ability to offer both advertising-based and subscription services while also providing more audience data insights that can be used to better development content and target ads.
“With content distribution and customer insights we’ll be able to deliver new subscription as well as advertising models, and new content formats that traditional programmers have been hesitant to adopt,” said Stephenson. “I suspect the rest of the industry is going to innovate right with us.”
Pending shareholder and regulatory approval, AT&T and Time Warner anticipate their proposed marriage will consummate by the end of 2017. In between then and now, other programmers will need to figure out how and if they will respond.
Disney presides over an impressive portfolio including ABC, ESPN, Pixar, and Marvel Studios. But as analysts have pointed out, it has thus far struggled with distribution. With Time Warner jumping into the arms of the one of the U.S.’s largest pay-TV and wireless providers, Disney could be feeling pressure to strengthen its own distribution network.
BTIG analyst Rich Greenfield said that Disney is likely too large to be absorbed by Apple or Google, and that the company could be interested in furthering distribution investments like the stake Disney purchased in MLB’s BAMTech, which Disney recently bought a one-third share in for $1 billion.
Disney has also been tied to reports regarding a potential suitor for Netflix, and Barclays sees that as a potentially smart response by Disney.
“In our opinion, the recent press reports about Disney’s interest in Netflix, does point to one potential solution. Apart from Disney gaining a global distribution platform through Netflix, the deal would also bootstrap technology capabilities (and hopefully culture) into a large media business,” wrote Barclays. “Over time, we can see a platform like Netflix gradually morphed into a tiered offering with sports, advertising, etc. customized by geography and attached to a huge content creation arm.”
Meanwhile, the AT&T-Time Warner announcement could serve to accelerate the already-anticipated recombination of CBS and Viacom.
“In many ways, we believe a combined CBS-Viacom could be even more attractive to strategic investors than TWX, given access to a broadcast network through CBS and one of the largest studios in the world, Paramount, along with a whole lot of content that can have cross platform appeal with better execution (Nickelodeon, Comedy Central, MTV, etc.),” wrote Barclays.
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Meanwhile, while the possibility of a CBS-Viacom re-merger moves closer to reality, analysts like Jefferies’ John Janedis believe smaller programmers won’t become more attractive to providers.
“We believe the announcement of this deal furthers the already high likelihood of a CBS/ VIAB combo, while other peers like DISCA, AMCX, and SNI wouldn't give suitors the scale needed for a transformative deal, in our view,” said Janedis in a research note.
Greenfield specifically pointed toward the flawed logic with programmers like Discovery, AMC Networks or Scripps Networks becoming acquisition targets in the wake of the AT&T-Time Warner deal announcement. He said it’s “hard to see how a distribution player benefits from acquiring Discovery” since the programmer lacks “prize assets” like HBO and Warner Bros., nor any sports rights like Turner.
Greenfield added that AMC is “not big enough” and doesn’t have enough “great content,” while Scripps, though it hasn’t executed well in mobile, it could have content that would be deemed valuable for direct-to-consumer offerings.
“That being said, given its size, it is also hard to see how it really provides meaningful content strength to a distributor -- particularly, as the barrier to entry to creating similar content in the mobile world is low,” wrote Greenfield.