AT&T emerged victorious from its courtroom battle with the DOJ yesterday, winning a clear decision in support of its $85 billion acquisition of Time Warner. To all those convinced this deal would never happen, I will try to refrain from saying ‘I told you so’ (oops) and instead focus on what the successful conclusion means for the future of TV.
A few thoughts….
1.The Big 4 Are Omnipresent If Not Yet Omnipotent.
On its face, this case was about competition in the pay-TV industry. What AT&T effectively argued, however, is that the relevant market is not pay-TV as a home service but video entertainment as a whole. Hey, isn’t that what TDG has been arguing for a decade now? Pretty much.
Anyway, the power of this argument, in the antitrust context at least, is that the real heavyweights in the global video market are not Dish Networks, Comcast, or any of the other legacy MVPDs. Instead, AT&T’s real competitors going forward are Apple, Amazon, Alphabet (Google) and Facebook, along with Netflix and (to a lesser extent) Microsoft.
These companies all have deep pockets, access to over a billion users (and the associated data), and a demonstrated commitment to create and deliver direct-to-consumer original video content on a worldwide basis without the need for a MVPD whatsoever. Regardless of the fact that the Big 4 don’t necessarily want to be in the traditional pay-TV business, their collective power is awesome in the true sense of that word, making the market power of a traditional player like AT&T look downright puny by comparison.
In the same way that the gravitational power of a black hole can literally bend light that comes within its ambit, I believe the threat of the Big 4 looming all around the parties to this case was powerful enough to bend traditional legal doctrine, causing AT&T to come out the winner, which brings us to our second point.
2. The Dumb Pipe Era is Over.
The broadband+pay-TV bundle has been and still is a very good business. For the large players at least, however, the era of the “Justas” (as in ‘Just a pay-TV provider’ or ‘Just a broadband provider’) is rapidly coming to an end. Comcast was obviously early to this party with its acquisition of Universal back in 2013. Verizon went its own direction, but still showed its desire to be more than a “dumb pipe” by acquiring Yahoo (now Oath) last year. AT&T started its transformation back in 2015 by acquiring DirecTV, but still lacked an original content play. The aforementioned Time Warner (read HBO) acquisition completes the set and clarifies the strategic choices for everyone in the space moving forward.
To wit, everyone now accepts that owning original content is a must-have, not a nice-to-have, which also helps explain why Disney and Comcast are about to have a death match over Fox Studios and Hulu. Expect other large players to follow suit, either building or acquiring their own studios and trying to match the big ecosystems show-for-show. For a current example of what this originals arms race looks like, check out Fastest Car (on Netflix), which is quite the homage to the success of Amazon’s The Grand Tour. For those without the means or wherewithal to keep up, the future is looking a little bleak.
For the consumer, by contrast, the upshot is quite a bit more complicated. On the positive side, consumers increasingly get really high quality original content “for free” as a reward for their loyalty to a particular ecosystem. This is the Amazon Prime model writ large. On the negative side, everyone’s frenzy to create differentiated video entertainment offerings is rapidly resulting in, well, differentiated entertainment offerings. Meaning everybody ends up with something somewhat different, and there is no longer any easy (or cheap) way to get access to “everything” that’s out there in the video ecosystem.
Honest Abe Lincoln once said, “The best way to predict your future is to create it.” That’s exactly what AT&T has done here by turning itself into a media company, thereby altering its future and preventing the Big 4 from sucking all of the value out of their otherwise increasingly dumb pipes.
To the rest of the industry, it’s your move.
Joel Espelien is a Senior Advisor for TDG and an M&A advisor with the Corum Group, providing sell-side advice to technology companies worldwide. He lives near Seattle, WA.