The tie-up of AT&T Inc and Time Warner Inc, bringing together one of the largest wireless and pay TV providers and cable networks in the US like HBO, CNN and TBS, could kick off a new round of industry consolidation amid massive changes in how people watch TV.
Stocks of some programmers that could attract interest rose sharply on Friday as the deal of the year came together. Discovery Communications Inc gained 3.6 per cent, AMC Networks Inc rose 3.9 per cent and Scripps Networks Interactive Inc jumped 5.6 per cent.
Media content companies are having an increasingly difficult time as standalone entities, creating an opportunity for telecom, satellite and cable providers to make acquisitions, analysts say.
Media firms face pressure to access distribution as more younger viewers cut their cable cords and watch their favourite shows on mobile devices. Distribution companies, meanwhile, see acquiring content as a way to diversify revenue.
“The industry needs to consolidate,” said Salvatore Muoio, whose firm invests in a number of media companies, including Time Warner. “You have a lot more competition from the likes of Netflix, Amazon and Hulu.”
AT&T said late Saturday it will buy Time Warner for $85.4 billion in a combination of cash and stock, forging the biggest deal in the world this year. It expects to close the acquisition by the end of 2017.
AT&T chief executive Randall Stephenson said the deal “is a perfect match of two companies with complementary strengths who can bring a fresh approach to how the media and communications industry works for customers, content creators, distributors and advertisers.”
Owning content will help AT&T “innovate on new advertising options, which, combined with subscriptions, will help pay for the cost of content creation,” the company said Saturday.
But the deal and others will need to pass the scrutiny of regulators, who have raised increasing concerns about media mergers.
‘Significant stress’
Shares of Walt Disney Co, often thought of as a leader in content, are down 16 per cent for the past year, noted Richard Greenfield, analyst at BTIG, who said the industry is under “significant stress.”
Earlier this month, Disney Chief Executive Robert Iger highlighted the growing importance of distribution for content companies.
Former Federal Communications Commission (FCC) Chairman Julius Genachowski, a partner at the Carlyle Group, said a AT&T-Time Warner deal “and other big potential deals reflect the landscape that’s changing dramatically from wired to wireless with big changes in consumption of video particularly among millennials,” he said.