What is the meaning of the merger between AT&T and Time Warner?

Last Friday, John Donovan, AT&T Chief Strategy Officer and president, provided us a striking example to underline how the changes in consumer behavior could impact data consumption, and give a strategic direction to his company. He illustrated this fact with the example of a cellphone owner willing to share with a friend his experience of riding a roller-coaster: a few years ago, he would have sent him a text (20KB), but today he can share one minute of virtual reality experience (1GB) with his friend… Thus, there is a need to focus on the customers’ needs to develop adapted services. I wanted to transpose this example with another decisive move in AT&T’s strategy: its will to merge with Time Warner. What are the ins and outs of this deal? And what does it reveal, both on communications industry’s future strategic direction and on the future consumer behavior?

 

For eight months, the US Department of Justice has been investigating AT&T’s $85,4 billion bid for Time Warner. However, we still do not know if the deal will be approved or not.  Indeed, this case is a significant one, since the outcome will give an idea of the Trump administration strategy for the years to come. There is a risk of trust, according to the regulation authorities, since AT&T could charge its competitors –here satellite companies- with higher fees for Time Warner content, which includes NBA games, HBO shows, etc. The deal is expected to be closed by the end of 2017. [1]

 

But what is the purpose of such a deal for AT&T? The answer is simple: to adapt to the new consumer behaviors. Indeed, the media and communications industries are converging, and today the consumers are eager to consume media on their mobiles. This merger is to completely transform the way people enjoy video entertainment, related to the choice available and the quality. In addition, one of the deal’s purpose is to provide the customers with more relevant advertising. Thus, such a transition should be possible while combining Time Warner huge content with the customer base of AT&T, namely more than 100 million customers. [2] [3]

 

This merger is at odds with the traditional strategy of AT&T, which used to focus on organic growth or acquiring other communications firms. Now, like Verizon or Comcast, AT&T has shifted toward the media industry, in order to provide its network with media content. This strategic move seems to be crucial for the industry, and everyone should be aware of its outcome. Indeed, if approved, it will probably launch a wave of deals between cable and satellite companies, wireless companies and content firms. Finally, it is interesting to note that AT&T has been willing to spend a great amount of money for this deal, not to mention their $120 billion of debt… They really want to be the first mover!

 

Sources

[1] https://www.nytimes.com/2017/07/09/technology/att-time-warner-merger.html

[2] http://about.att.com/newsroom/att_time_warner.html

[3] http://about.att.com/story/att_to_acquire_time_warner.html

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