AT&T’s Acquisition of Time Warner Creates a Platform for Digital Growth

In October 2016, AT&T announced its intention to acquire Time Warner in a US$85.4 billion deal. The acquisition was significant, as the new company would leverage Time Warner’s large content portfolio and content creation capabilities with AT&T’s linear and Over-the-Top (OTT) pay TV, broadband, multiplay, mobile expertise, and direct reach to subscribers across multiple platforms, including 89.3 million consumer wireless subscribers in the United States (as of March 2018). In November 2017, the U.S. government filed a suit to block the merger on the grounds that it would lessen competition. However, in early June 2018 a court rejected the claim, allowing for the deal to be completed with no conditions. This resolution has a massive importance not only for the telecom markets but also for wider technology and vertical markets, as it proves to MSPs worldwide that it is possible for them to expand in adjacent areas creating the bases for future growth.

Time Warner is a media and entertainment global leader which includes highly valuable content from companies such as HBO and Warner Bros. Content is a key driver of video consumption, both in the traditional pay TV and bundling strategies as well as in the cord-cutting space (e.g., OTT video providers such as Netflix).

There are synergies and strategies that will be built with AT&T traditional services and there is no doubt that part of the rationale for this acquisition was on boosting traditional bundled offers, mobile-fixed convergence, and video consumption thus addressing the endemic problems of flattening revenues faced by all MSPs in their core businesses. However, there are other reasons justifying this move. This deal unites AT&T distribution network across multiple platforms and end consumer knowledge and expertise with premium, proprietary, and original content. AT&T (plus Warner) can generate a vast data like of first hand data and it can target different audiences as the company has data on users’ habits and content consumption. The ability to target the advertising space for premium content must be a key future growth driver for AT&T.

AT&T acquisition of Time Warner creates a base for future growth in the digital world. This path was ratified by AT&T acquisition of AppNexus only few weeks after receiving the final approval for the Time Warner deal. AppNexus operates a global advertising marketplace providing enterprise products for digital advertising and serving publishers, agencies and marketers. AppNexus’ marketplace is currently used by more than 34,000 publishers and 177,000 brands. AppNexus will be part of AT&T advertising and analytics segment and will bring sector specific expertise in areas such as machine learning and predictive analytics, advertising technology and video.

The approval of the AT&T-Warner deal shows that MSPs can make bold moves and investments in adjacent areas. The acquisition creates an extremely powerful and competitive vertical company with deep expertise and reach, from content creation all the way to content distribution and consumption across different platforms. The deal will boost AT&T bundling strategy and will help the MSP to increase its traditional revenues. The United States is a content-driven market, and as consumers are willing to pay higher monthly subscriptions for premium content (including 4K video), content is becoming a clear driver for growth. However, this deal also allows AT&T to look at new areas beyond the traditional telco business. The new main opportunity for AT&T is targeted advertising around premium video content. Creating content and knowing firsthand how that content is being consumed is a great asset, and having this information could provide AT&T with an edge over competitors in the advertising space.

The Warner and the AppNexus acquisitions indicate the path taken by AT&T to enter the digital world leveraging traditional multiplay assets and content but also innovative assets such as advertising and content creation. With its acquisition of AppNexus, AT&T moves well into the advertising space with goals of strengthening its advertising platform and leadership in advanced TV advertising. AT&T will integrate its first-party data and distribution, Warner premium video content, and AppNexus’ foundational technology to create new UnTelco revenues.

The advertising space is dominated by giants such as Google and Facebook, however, MSPs are in a strong position to play a larger role in this area as a result of their competitive advantages related with the large amount of data and knowledge that they can derive from their users. The key challenge now for AT&T will be to grow its advertising business without disrupting its customers’ relationships. MSPs need to show that they are trustworthy depositary of consumer data while at the same time they need to use part of that data to create new services and revenues.

The lessons for other MSPs is that leading MSPs are ready to take on the risk and invest to face the endemic problems of the telco market. AT&T acquisition of Tim Warner is the natural evolution of the MSP creating a platform that can be used for the growth of traditional and non-traditional revenues. AT&T acquisition of AppNexus shows that the company wants to move beyond the telco domain and is ready to chase revenue growth in the digital world.