Harry Potter, Anthony Bourdain, Superman, Bill Simmons and Charles Barkley are all going to work for a phone company.
AT&T's planned $ 85.4 billion acquisition of Time Warner, the New York-based company that owns HBO, CNN, TNT and Warner Bros. film studio, is a huge domino falling in the content business. The deal, which creates a media powerhouse and comes with promises of innovation and cost-savings, will make competitors in the wireless and Internet space like T-Mobile, Sprint and Verizon uneasy.
The move could also set off a new wave of telecommunications companies and Internet giants, such as Google and Apple, buying or making deals with popular content programmers, further blurring the boundaries among the industries. Other media companies that could be potential takeover targets, to name a few, include: AMC Networks, best-known for its top-rated TV show The Walking Dead but which also owns BBC America and SundanceTV; and Discovery Communications, which owns and operates Discovery Channel, The Learning Channel, Animal Planet and OWN, in a joint venture network with Oprah Winfrey.
The merger, which marries partners in distribution and content, will surely trigger multiple layers of complexity for customers, industry regulators, investors and consumer watchdogs as they sort out revenue possibilities and conflicts of interest. But competitors of Time Warner or AT&T can no longer to afford to stand by idly.
Time Warner's Chairman and CEO Jeff Bewkes intimated as much, saying the deal was partly to get ahead of competitors. "You're going to see all kinds of distributors following," he said in a press conference call with reporters Saturday night. "And you're going to see a kind of revolution in the TV world."
Telecom providers have been shopping for content companies to acquire as their wireless smartphone and broadband Internet service markets mature. “As upside from data usage seems to be increasingly capped, we would not be surprised if other distributors were to potentially embrace larger opportunities in the content arena over time,” said Barclays Equity Research analysts Kannan Venkateshwar and Amir Rozwadowski in a recent note to investors.
Ownership of Time Warner's content – including Harry Potter movies, DC Entertainment films, whose franchises include Superman, Batman and Wonder Woman, CNN, NBA basketball on TNT, MLB baseball on TBS, and HBO's critically acclaimed shows, like Game of Thrones — guarantees that AT&T can make those programs available on its DirecTV satellite TV service. AT&T can also stream those shows to its Net-delivered and wireless DirecTV-branded streaming services in the works. AT&T bought DirecTV last year for $ 48.5 billion.
With more consumers streaming on their mobile devices, Bewkes, whose company had been wooed by others, pulled the trigger on the deal largely because he was drawn to the idea of delivering his content to consumers on "a multiplatform basis," he said.
Beyond that, AT&T also gets revenue by licensing those movies and TV series to other pay-TV providers and subscription Net TV services such as Netflix. “Video and entertainment will remain the key driver for the future of consumer-oriented services,” said Brett Sappington, senior director of research at Parks Associates. “Video, virtual reality, and other entertainment experiences are data hungry. They will be the experiences that push consumers to higher tiers of broadband or mobile data.”
Owning content also helps pay-TV providers to avoid costly conflicts over the escalating prices they pay to carry programming, he said. “With content costs continuing to increase, operators are expecting more such conflicts in the future. So, ensuring access to popular content certainly helps AT&T,” Sappington said.
Comcast’s acquisition of NBC Universal in 2011 foreshadowed AT&T-Time Warner deal. And regulators' approval of the deal and Comcast's continued profitability from its business diversity have emboldened its pay-TV competitors. Since then, Comcast also acquired DreamWorks Animation in April for $ 3.8 billion.
Verizon’s announced July purchase of Yahoo for $ 4.83 billion — and its May 2015 $ 4.4 billion deal for AOL — involved content, as well as Internet advertising, making it “a case of buying what it needed to better monetize the data its network produces,” said analyst Brian Wieser of Pivotal Research.
Other media companies that could be potential takeover targets:
*AMC Networks. Best known for its top-rated TV show The Walking Dead, AMC owns BBC America, IFC, SundanceTV, WE tv and IFC Films.
*CBS and Viacom. The controlling shareholders of both companies – principally, billionaire media mogul Sumner Redstone and his daughter, Shari Redstone – have called on the two companies to merge. With a combined market cap of more than $ 40 billion, a CBS-Viacom would hold not only CBS’ various networks including Showtime, but also Viacom’s assets such as Paramount, BET, Comedy Central, MTV and VH1.
*Discovery Communications. The Silver Spring, Md.-based company owns and operates Discovery Channel, The Learning Channel, Animal Planet and OWN, in a joint venture network with Oprah Winfrey.
*Scripps. The Knoxville, Tenn.-headquartered Scripps Interactive Network owns channels such as HGTV, Food Network and Travel Channel.
“Any media company without a controlling shareholder and other than Disney (because of size) could be a target,” Wieser said.
Follow USA TODAY reporters Mike Snider and Roger Yu on Twitter: @MikeSnider, @ByRogerYu.
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