Media

Tara Lachapelle is a Bloomberg Gadfly columnist covering deals. She previously wrote an M&A column for Bloomberg News.

How about that new show from ATT&E? Oh, you haven't heard of American Telephone, Telegraph and Entertainment? They added the "E" in 2017.

Right, so the chances of that name change ever happening are hopefully, probably zero. But the part about the telecommunications company adding entertainment to the mix does seem to be part of its plan.

Some 14 months after AT&T's $67 billion takeover of DirecTV gave it a national satellite-TV business, the wireless-phone giant is looking to own some of the video content it sends across its airwaves. Over the next three to five years, it's planning to buy entertainment-media properties -- even targets as large as $50 billion, Bloomberg's Scott Moritz reported Wednesday. That news provoked some trepidation among AT&T shareholders, who sent the stock lower. 

Mixed Feelings
Amid word that AT&T is seeking a big media acquisition, its stock fell almost 2% on Wednesday as the S&P 500 index rose. This officially wiped out all of AT&T's gains since early June.
Source: Bloomberg

If it's any consolation for AT&T's investors, a media acquisition in the neighborhood of $50 billion is probably still a ways down the road. The company did just balloon its debt to $127 billion and is grappling with how to retain video subscribers who are turning to cheaper online services to save money.

That said, AT&T's deal ambitions shouldn't come as a shock. Even as consolidation among pay-TV players has helped them gain some sway with media providers from a bargaining standpoint, content is still king. Success of shows like HBO's "Game of Thrones" and AMC's "Walking Dead" have made that pretty clear. People will pay for good content, even if some prefer not to pay for the whole kit and caboodle. 

Attack of the Cord-Cutters
While DirecTV added 342,000 subscribers in the second quarter, AT&T's U-Verse lost 391,000 customers.
Source: Bloomberg, company filings

The Bloomberg scoop said that Chairman and CEO Randall Stephenson keeps a spreadsheet collection of about 40 to 45 peers and potential takeover targets. I would imagine that Time Warner is near the top of that list. It's ironic given that the last time Time Warner merged with a non-media company, AOL, it became widely regarded as the worst corporate tie-up in history and still evokes traumatic memories for investors almost seven years after the deal was undone. But times have changed, and the industry lines are blurring. 

Time Warner, valued at $62 billion, owns some of the best media assets -- HBO, CNN, TBS -- and is the most feasible candidate to meaningfully vault AT&T into the entertainment business. At the direction of the Redstone family, CBS and Viacom are headed toward a merger, and it will take them a couple of years to turn around Viacom's MTV and Comedy Central networks. Forget Disney -- and Rupert Murdoch's 21st Century Fox is unlikely as well. That pretty much leaves Time Warner and then smaller players Discovery ($16.6 billion) and Scripps Networks ($8.3 billion). 

For Dallas-based AT&T, the main challenges will be circumventing regulatory obstacles and navigating differences in business culture. Stephenson has spent his career in telecommunications, beginning at AT&T's predecessor Southwestern Bell Telephone in Oklahoma in the early 1980s. If AT&T is going to make a big move into media, it would be smart to keep whatever company it buys somewhat autonomous and have its management stay on for a while.

As for regulators, the concessions Comcast had to make when it bought 51 percent of NBCUniversal weren't that bad -- mainly, don't discriminate against unaffiliated content carried on your systems and be willing to sell programming to both online and traditional rivals. 

Comcast took full control of NBCUniversal in 2013, and now broader consolidation of entertainment-media companies is beginning. It makes sense that AT&T would want skin in the game. Comcast recently bought DreamWorks Animation, and AT&T was said to have bid for Starz, which agreed to sell to film studio Lions Gate in June. This week, I also wrote about why Scripps, the owner of HGTV and the Food Network, is an appealing candidate for a merger.

Media Mash-Ups
Media M&A surged in 2014 and 2015, led by the pay-TV providers. A decade ago, deals centered on publishing companies. As buyers such as AT&T look to gobble up TV content, could the next deal wave come in 2017-2019?
Source: Bloomberg

Some will surmise that Time Warner Chairman and CEO Jeff Bewkes is firmly opposed to selling the company, given that he spurned bids from Fox two years ago. But if you look back, Bewkes wasn't being unreasonable. According to Bloomberg reports at the time, he simply wasn't interested in selling while other potential suitors, such as AT&T and Comcast, were tied up with other giant deals (this was when Comcast was still the buyer for Time Warner Cable, which eventually ended up being bought by Charter Communications instead).

It didn't seem so obvious at the time that AT&T was a candidate to buy Time Warner, but as content becomes the center of gravity, it's clear that everybody wants some. Soon, AT&T will be in the position to take that step.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. AT&T is planning to introduce its own TV-streaming platform, DirecTV Now, by the end of the year as an option for cord-shavers.

To contact the author of this story:
Tara Lachapelle in New York at tlachapelle@bloomberg.net

To contact the editor responsible for this story:
Beth Williams at bewilliams@bloomberg.net