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While Wall Street and the financial newspapers start digesting the news that AT&T has struck a merger deal with Time Warner (TW), the debate inevitably moves onto ‘who’s next?’
Research house Ovum says that the implications for anyone in the content and delivery business are “fundamental”, and just about everyone on either side of the supply/delivery fence will be refreshing their strategies.
Ovum, and plenty of others, have already commented on how challenging knocking the two quite disparate companies into one will be. TW – as with many a similar organisation – bringing their assorted silos together will be a challenge. It isn’t that HBO rarely talked to TW, or that TIME magazine rarely talked to CNN (they both talked to one another-just) but building real synergies and multi-platform benefits were hugely difficult to achieve.
IHS Technology’s Ted Hall (director of research), said: “Across the world, content has become a key tool for network operators seeking to differentiate themselves from their competitors, and an opportunity for growth as operator services subscription growth slows in the face of market saturation. Deals for exclusive access to content have been leveraged to build audiences for digital ‘Over The Top’ services. While sport has proved to be a major area of competition for the networks as they enter the content arena, properties such as HBO’s Game of Thrones hold a similar ‘must have’ attraction for audiences.”
IHS continued: “While this is not a consolidation as such, but the acquisition of a supplier, this deal creates an entity with significant synergistic scale. This is not a done deal and political scrutiny will follow. A major hurdle has arisen as Donald Trump has recently railed against the acquisition of NBCUniversal by Comcast in 2013, threatening it with a review and potentially a breakup. Trump brought that position to bear over the weekend, threatening to block the deal as the agreement was revealed. Clinton’s campaign has already indicated that she believes the deal should face scrutiny.”
But those of us with a memory that goes back further than a week might also remember the last time anyone bought Time Warner, and when in the heady, dotcom crazy days of 2000 when AOL bought Time Warner for more than $160 billion – and by every measure known to mankind was one of the world’s worst-ever business decisions. At the time, the dotcoms thought it the best deal since sliced bread, and many predicted wonderful benefits, fabulous synergies and the prospects of champagne for all.
The AOL/TW deal was supposed to see TW gain a footprint into the tens of millions of households then using AOL. AOL would benefit from access to TW’s cable network, although few remembered that having a solitary supply of on-line content wasn’t likely to go down well with either consumers or regulators.
Columbia Business School professor Rita Gunther McGrath summed up the AOL/TW deals recently, saying: “Certainly the lawyers and professionals involved with the merger did the conventional due diligence on the numbers. What also needed to happen, and evidently didn’t, was due diligence on the culture. The aggressive and, many said, arrogant AOL people “horrified” the more staid and corporate Time Warner side. Cooperation and promised synergies failed to materialise as mutual disrespect came to colour their relationships.”
AOL’s stock value evaporated from a peak of some $226 billion, to $20 billion in a few short years, until TW spun the unit off in December 2009, and management started building the media company back up to value and free from the catastrophe that was AOL.
Which brings us to the question of ‘who’s next?’ Any number of content owners, especially outside of the major ‘usual suspects’ of Disney, NBCU/Comcast, Viacom/CBS/Paramount, News/21st C Fox, must all now be wondering whether they might be the next meal for a deep-pocketed shark attack.
It is perfectly valid to consider whether Charlie Ergen’s Dish Network might be of interest as a distribution platform (and helped by its Hopper/Sling TV services). Remember, Dish also has distribution assets over some Latino markets. Same with Verizon as a potential buyer of any number of content-rich assets (AMC, Scripps, Hearst, Lionsgate/Starz, MGM) and any number of other more-or-less unaffiliated producers.