Bloomberg News reported that AT&T is close to buying Time Warner, whose roots date back to a 1920s magazine and film studio, for about $86 billion and that a deal could finalize over the weekend. Time Warner stock jumped nearly 8 percent in regular trading and another 5 percent after hours.
The potential merger highlights one of the most definitive trends of the modern media business: the push from tech and telecommunications giants to control the lucrative, popular content they once passively supplied.
It follows a wave of dealmaking and consolidation that could radically transform viewers' leisure time and media spending, including Comcast's purchase of NBCUniversal, Google's push into live-TV streaming, and the original-programming investments of Amazon and Netflix.
That big wave of media change, analysts said, could just be getting started. Apple approached Time Warner about a potential combination deal several months ago and continues to watch negotiations, the Wall Street Journal reported Friday, citing unnamed sources. Apple did not immediately respond to requests for comment.
A merger between AT&T and Time Warner would be a historic deal. For starters, it could suddenly give AT&T control over a massive number of the world's most valuable media brands. It would complete the transformation by the wireless carrier — already the nation's second-largest — into a fully fledged entertainment powerhouse, launching an entirely new chapter in the history of the telecommunications giant. And it would be no less monumental for the rest of the communications industry, a rapidly consolidating area of business in which Internet providers are increasingly playing a central role in how consumers work and play.
Never before has a telecom company the size of AT&T sought to buy up a content firm like Time Warner, according to Craig Moffett, an industry analyst at MoffettNathanson.
“A [telecom company] owning content is something that was expressly prohibited for a century” by the government, Moffett said, “and even now, it raises all kinds of unique questions.”
The tie-up could see AT&T gain ownership over a dizzying array of household names. Time Warner — not to be confused with Time Warner Cable, which sold itself to Charter Communications earlier this year — owns HBO, meaning that AT&T could soon have the rights to “Game of Thrones,” “Westworld” and “True Detective.” It would control some of the most successful TV content in history, such as “The Sopranos” and “The Wire.” It could also benefit from all the subscription revenue from HBO, the most profitable cable subscription business in history, whose 130 million subscribers on cable and on HBO's online streaming app pay about $15 a month.
AT&T would also own all the channels associated with the Turner Broadcasting System, including TNT, which is available in nearly 100 million pay-TV households. This means that shows such as “The Last Ship,” “Falling Skies” and “The Librarians” would be controlled, ultimately, by AT&T. The telecom could also own Turner Classic Movies and TBS, which includes programming such as “Full Frontal with Samantha Bee” and coverage of Major League Baseball. Under the Turner banner is an array of other sports programming, too, such as the Bleacher Report, NCAA.com and NBA Digital, a partnership with the National Basketball Association. For sports fans, this could mean much of the way they experience March Madness would be indirectly controlled by AT&T.
Also potentially falling into AT&T's hands would be the news channel CNN and its multinational operations. From political debate coverage to on-scene reports about hurricanes, tuning into CNN would mean more revenue for AT&T.
AT&T could come to own all of Warner Bros., which includes not only the Warner Bros. movie studio (which produced the hit “Harry Potter” films, “Inception” and “American Sniper”) but also New Line Cinema (which is responsible for the “Lord of the Rings” films, “Wedding Crashers” and even “The Notebook."). Warner Bros. also controls DC Comics, meaning AT&T would have the rights to Batman, Superman, Wonder Woman and a whole host of other pop culture icons.
Time Warner could also offer AT&T lucrative media gold mines beyond traditional TV. The company’s Warner Bros. Interactive Entertainment division is one of America’s most prominent video-game publishers, helping develop the “Lego” series, the “Batman: Arkham” series and bestsellers like “The Witcher 3: Wild Hunt.” That division made more than $2 billion in revenue last year alone.
Time Warner was the fourth-largest media company in America last year, with roughly $28 billion in revenue. Its film division has averaged roughly $4.5 billion in annual box office sales over the last five years. This year, it is the second-highest-grossing studio, behind Disney, having pulled in more than $1.5 billion from movies such as “Batman v. Superman: Dawn of Justice,” “Suicide Squad” and “Central Intelligence.”
In short, an AT&T-Time Warner tie-up would create one of the most powerful combinations of content and distribution America has ever seen. And the implications would be far-reaching: AT&T could offer intricate cross-promotions between different parts of its business, similar to the way it has started bundling cellular service with DirecTV, the satellite TV company it purchased last year. It could make money by licensing shows and movies to other cable companies, and also compete against them by fleshing out the offerings of its own U-verse pay-TV service.
A deal would come to epitomize the rapid, dramatic changes affecting the media and technology space. Content producers and cable companies alike are grappling with new Internet business models, seeking fresh ways to distribute their shows online as more consumers consider ditching the traditional cable bundle. Americans' media consumption is shifting to mobile devices, which is encouraging firms such as AT&T to bet big on wireless connectivity and forcing providers of fixed broadband to hunt for new ways to compete. Industries that previously had been insulated from one another by the limits of technology are now being forced to contend with each other as entertainment and communications converge on the Internet.
In 2011, Comcast became one of the first companies to acknowledge the trend by buying up NBCUniversal, which created a media and distribution conglomerate that now controls theme parks, television shows and access to the Internet. At the time, antitrust regulators permitted the acquisition under certain conditions designed to keep Comcast from using the combined company to squeeze out the competition. But some analysts say those conditions weren't effective — and that AT&T may face similar concerns.
“This would probably not be a slam dunk with regulators that likely have second thoughts after watching the ineffectiveness of behavioral remedies for the approval of Comcast’s acquisition of NBC,” said Walt Piecyk, a telecom analyst at BTIG.
The atmosphere for mergers and acquisitions grew even dimmer in 2015, when the Federal Communications Commission and the Department of Justice moved to block Comcast's attempted purchase of Time Warner Cable. Federal officials argued that the deal would give Comcast so many Internet subscribers that it could use them as leverage against online businesses that needed access to Comcast's customers.
Regulators would probably raise the same issues this time. It's unlikely they would let AT&T put Time Warner's content on its wireless or home Internet platform on an exclusive basis, analysts say. Nor would the government be eager to allow AT&T to exempt Time Warner programming from cellular data caps.
“There'd be an enormous competitive concern about self-dealing, favoring their own properties to the detriment of competition,” said Gene Kimmelman, a former antitrust official at the Justice Department who is now the president of the consumer advocacy group Public Knowledge.
Based on the restrictions regulators may impose to address those concerns, a merger between AT&T and Time Warner may be more trouble than it's worth, Moffett said.
“There's no industrial logic to combining content and distribution,” he said. “It sounds good in theory, but it doesn't hold up very well when you poke at it.
“I don't think you can give a merger like this much better than 50-50 odds,” he added.