Rationale behind the Time Warner deal

In 2016, AT&T (T) announced a definitive agreement to acquire Time Warner (TWX) in a stock-and-cash transaction valued at $107.50 per Time Warner share.

AT&T believes that the resulting combined content and distribution ownership will allow for faster innovation. Time Warner’s media creation team should hear and react more quickly to the shifting consumer needs detected by AT&T’s distribution.

Key Updates on the AT&T–Time Warner Deal

Also, the combined entity could bring better options to consumers upset by high cable bills. As a result, innovation and bundling services together could bring down prices for consumers, helping to lower AT&T’s churn rate and boosting its wireless margins.

During the Deutsche Bank Media, Internet and Telecom Conference on March 8, 2017, John Stephens, AT&T’s chief financial officer, shared updates on the AT&T–Time Warner deal. Stephens said that the fact that no licenses were being transferred eliminated the FCC’s (Federal Communications Commission) jurisdiction to review the deal on its own.

He also said, “You saw that their vote was overwhelmingly in support of the merger. It was well over 95% in favor, so that’s been great. We continue to work with the DOJ in the normal course and we’ll continue to move that forward.” AT&T’s management continues to expect to close the deal at the end of 2017.

The real motivation for AT&T’s acquiring Time Warner seems to be that it’s been frustrated with the lengthy negotiations involved in acquiring content from various content providers. The Time Warner acquisition should help it to solve this problem to a large extent, as acquiring Time Warner’s content will then be a seamless and less time-consuming process.

AT&T’s rising content costs

One of the major costs for distributors is the cost related to content acquisition. Media distributors, including telecommunications company AT&T, cable company Comcast (CMCSA), and satellite providers such as DISH Network (DISH) all have to manage these rising programming costs.

As the chart above shows, AT&T’s Entertainment Group segment’s operating expenses rose ~2.6% YoY (year-over-year) to reach $11.8 billion in 4Q16, compared to $11.5 billion in 4Q15. The main reason for this rise was the acquisition of DIRECTV and increased content costs.

Latest articles

Apple stock fell 4.6% as the US-China trade war intensified today. China warned of tariffs on more US goods, followed by Trump's tweeted response.

In response to new tariffs from China and President Trump's tweets, the market tanked to session lows on Friday. The DJIA nosedived more than 600 points.

Coverage on Cresco Labs has increased from seven analysts in July to nine in August. Six analysts favor a “strong buy,” and three recommend a “buy.”

AMD stock hit a new 13-year high after the EPYC Rome server CPU launched. How can AMD outperform Intel CPUs at such low prices and still profit?

VMware (VMW) lost about 9% in early hours trading today. VMW released its Q2 of fiscal 2020 results on August 22 after the market closed.

Since Netflix posted its Q2 results, its stock has fallen 18%. Could the streaming giant lose its disruptor position as new players enter the market?