AT&T Wants Backsies – The US Perspective
A surprisingly salient political topic in the 2016 election was the proposed $ 85 billion merger announced in October between AT&T and Time Warner, the media conglomerate that was home to CNN, HBO, TNT, TBS and numerous other channels. Donald Trump, who has not made so many political statements during his political career, highlighted the case during an election appearance, saying his administration would not approve it because it would put “too much concentration of power in the hands of too few”. He even tried to keep that campaign promise: his Justice Department tried to block the merger, lose in federal court in 2018.
AT&T argued that the deal was critical to its viability as a company, amid stiff competition from other platforms that combined the Internet and cable distribution with compelling programming. Only by combining content with delivery could the company compete for scarce ad dollars and continue to grow its wireless and broadband networks. Consumers would benefit from greater means to access content. This would strengthen a business with a long history and allow it to thrive in the 21st century.
Monday AT&T said: Scratch this off.
The company announced a deal with Discovery, Inc., for $ 43 billion, half the amount of the purchase of Time Warner, which would combine Discovery with its WarnerMedia products and turn it into a whole new company. The new merged giant would add TLC, Discovery, Animal Planet, Food Network, HGTV, OWN and more to WarnerMedia’s vast roster, creating arguably the largest media company in the world. AT&T shareholders would keep 71% of the new publicly traded company, with Discovery shareholders getting the rest.
But that would also remove AT&T from the media business, just three years after joining. All of these discussions about “synergy” and consumer benefits are over. And that’s part of a model for AT&T, which bought DirecTV in 2015 for $ 48 billion and sold a large part of it in February to a private equity firm for a fraction of the price.
So what was the point of this whole business? If the AT&T / Time Warner business was thriving, there wouldn’t have been this move to roll it out so quickly. The ability to produce and distribute content under one roof clearly hasn’t worked, at least not to the satisfaction of executives and investors.
The idea was that a new online video service would help AT & T’s wireless phone business. Seriously.
The video service, HBO Max, seems to be evolving well, but not at the level of Disney + or Netflix. (A previous launch of AT&T TV live streaming caused only one ripple.) But that didn’t and never will move a phone company’s needle, as that was a ridiculous notion back in the day. departure. There has never been a way to harness WarnerMedia programming on AT&T cellphones, and juggling the two has reduced AT & T’s ability to push back its competitors and expand its programming on HBO Max and its 5G network to wireless. A company known to hook up phone calls might not be the best option for running HBO, the biggest premium TV brand in the United States.
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The main legacy of AT&T / Time Warner is the loss of jobs; thousands of them at WarnerMedia in 2020, as the parent company sought cost savings of up to 20% just a few years after the merger. Maybe the pandemic, which has shrunk Warner Bros. movie revenue and television advertising, created a gap from which this company could not bounce back. But AT&T too job cuts in 2019, before anyone knows the word ‘coronavirus’. One of the alleged benefits of the merger was to consolidate costs and benefit from scale. But again, breaking up these two companies didn’t make sense; AT&T didn’t add anything that Time Warner couldn’t have done on its own (in fact, it did, with the proto-streaming service HBO Now).
The other inheritance was a $ 400 million “Golden Parachute” for Jeff Bewkes, former CEO of Time Warner, who resigned during the AT&T merger. You would think that going from two CEOs to one would be the biggest financial benefit of any merger, but the common practice is to reimburse the fired CEO with a ridiculously large sum. This is meant to grease the deal, so that the acquired company does not fight. Even when, as in the case of AT&T, the merger subsequently fails, Jeff Bewkes keeps his $ 400 million, unlike the thousands of workers who were unable to keep their jobs.
From now on, WarnerMedia and Discovery will have to restructure again. David Zaslav, CEO of Discovery, will lead the new company; Jason Kilar, who previously ran Hulu, was just appointed to head WarnerMedia last year. It is not known if Kilar will accept the demotion and how much money will be offered to him for this purpose. But we do know that Discovery and Warner Media are promising $ 3 billion in annual savings of the transaction, again through consolidations and synergies. When you see these words together, they mean layoffs.
It is therefore two mergers, one to build a vertically integrated giant and the other to separate one swollen giant from another. Consumers got nothing new from the deal; producers have one less media conglomerate around green light projects; and the cable companies have another absolute monster to deal with in the negotiations for the channels. No one has been helped fundamentally except for a few former CEOs. Tens of thousands of workers will be on the streets.
Being bad at mergers and generally bad at business hasn’t really hurt AT&T, of course. Aside from the personal embarrassment and around $ 180 billion in corporate debt resulting from these fiascos, his executives will always be paid and he still holds a strong position in the telephone industry, which now boils down to three main companies. . AT&T doesn’t care what livelihoods it has shaken up in the name of moving giant companies like pieces on a chessboard. But the US government should care what this company, and other serial fusion companies like it, is doing to our economy.