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What's going on?
AT&T, Americas second biggest wireless carrier, has agreed to buy media giant Time Warner for about $85 billion (tweet this) in what, if completed, would be one of the biggest ever media deals.
What does this mean?
AT&T provides mobile phone services to millions of Americans. After a series of transformative innovations (the internet, mobile phones and then smartphones), the telecom industry doesnt have a new catalyst to drive revenue growth. By purchasing Time Warner, AT&T would massively diversify its business model (it would make a significant proportion of its revenue from selling content). It also, in theory, would create new ways for the enlarged company to increase revenue by, for example, combining its distribution as a wireless carrier with high-quality content into a package that the consumer pays for with a monthly fee (sort of like wireless pay TV).
Why should I care?
For the stock: Many investors are skeptical of AT&Ts rationale.
AT&T is essentially buying one of their content suppliers. The problem might be that consumers demand content from a variety of suppliers: we want to watch Narcos, Game of Thrones and college basketballs Final Four (the rights to which are all owned by different suppliers). AT&T appears committed to licensing Time Warners content to other media distributors (e.g. its competitor Verizon), which its probably required to do anyway by competition law. Quite how its going to be able to use Time Warners content to differentiate its wireless offering is not really clear yet.
The bigger picture: The lines between telecom, cable and media companies continue to blur.
Comcast, AT&Ts biggest cable TV competitor, owns the media business NBCUniversal and bought Dreamworks Animation earlier this year; it also recently announced plans to launch a wireless service. Verizon, AT&Ts biggest wireless competitor, has agreed to buy Yahoo and is investing in smaller media companies in a digitally focused strategy (e.g. internet TV). AT&T is betting big on traditional media (i.e. its expecting Time Warners content to remain highly sought after by customers).
Originally posted as part of the Finimize daily email.
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