AT&T’s mega offer to buy Time Warner looks more defensive than transforming. If it spends more than $120 billion on acquisitions in two years, can the telco survive and service that much debt?
AT&T’s $85.4 billion potential deal to buy Time Warner is set to reshape the media landscape in the US and beyond, but its meaning for telcos around the world is less clear.
This, of course, is not the first time a telco has made a major investment in a media company, in fact the two sectors have been flirting with each other for years.
Or rather, telcos have been scratching their heads and trying to understand what to do next, and have decided that they should also become media companies.
None of these deals, however, has really delivered. Remember the much-vaunted tie-up between Rupert Murdoch’s News Corporation and MCI back in 1995? It’s the stuff of history now.
MCI tipped $2 billion into News a full twenty years ago, and was for a time the largest external shareholder after the Murdoch family.
Today? After itself being acquired by WorldCom and heading into a painful bankruptcy, MCI is now part of Verizon. It is still only a telco.
In Australia, Telstra had great hopes for the Foxtel cable television venture, once again with News Ltd, but there has been speculation for a year or more that Telstra wants out.
Cable television worldwide has been hit with disruption by the rise of streaming services and Youtube, and while its value is in the billions today Foxtel is rapidly becoming more of a liability than an asset.
In the case of AT&T, the Time Warner deal comes after it has already acquired DirecTV, a successful satellite broadcaster with close to 40 million subscribers across the US and Latin America.
After paying around $48 billion for DirecTV, and now potentially $85.4 billion for Time Warner, AT&T will be one of the most indebted corporations in the world. Time Warner also has more than $20 billion in debt.
So will it be worth it? HBO, CNN and Warner Brothers are great brands and produce some of the most watched content on the planet, but HBO are struggling to replicate the Game of Thrones phenomenon and what happens if they can’t do it?
Part of the rationale is that AT&T is just playing catchup with Comcast, which has had a tie up with NBC-Universal since 2009 and moved to full ownership in 2013.
But is keeping up with the Joneses a good enough strategy?
Put aside the political and anti-trust noises coming out of the US at the moment as we count down to the election and look it strategically.
Old style telcos around the world need to transform their business models. That is old news.
But whether they can really make a go out of become media companies and content producers remains to be seen.
The AT&T deal looks more defensive than visionary in terms of strategy, and it is laced with “ifs” and “buts” and a whole lot of debt, which could so easily turn poisonous.
Sure, the deal means that instead of paying licensing fees for content, AT&T will now own it and that will be a revenue stream.
And, if people cut the cord to cable, they might then go to HBO’s upcoming streaming service, soon to be owned by AT&T.
It also delivers a pile of content to be pushed out on new platforms, in particular mobile.
But what happens if young people continue to turn to content through YouTube and Snapchat?
Google already owns YouTube, while Snapchat is supposedly worth more than $20 billion today. More debt for AT&T perhaps?
The AT&T deal is not just a US business story, it goes to the very heart of the established telco dilemma.
How can they transform and arrest the slow decline so many of them have been experiencing?
With OTT players and MVNO’s cannibalising their business, one response is to turn predator.
But perhaps they should remember another history lesson, and that is that the biggest predators of all, the dinosaurs, no longer walk the earth.