Old entertainment giants merge to fight competition from Netflix

Donald Trump, in his election run-up, also opposed the deal claiming that the merged entity would monopolise the entertainment business and lead to higher prices for consumers.

Published: 15th June 2018 07:44 AM  |   Last Updated: 17th June 2018 03:10 AM   |  A+A-

Express News Service

On Thursday, AT&T announced it had completed the acquisition of Time Warner for an estimated $85 billion. It was the marriage of one of the world’s oldest technology and communication delivery company, AT&T, with Time Warner — perhaps the world’s frontrunner in the production of entertainment and news content with subsidiary behemoths such as Warner Brothers, HBO, Turner and CNN.

“We’re going to bring a fresh approach to how the media and entertainment industry works for consumers, content creators, distributors and advertisers,” Randall Stephenson, chairman and CEO of AT&T, said in a statement.

AT&T’s Time Warner acquisition has been in the works for some time and has been opposed by competitors. The two companies initially signed a deal in October 2016, but the merger was delayed after the US Justice Department sued to stop the acquisition. Donald Trump, in his election run-up, also opposed the deal claiming that the merged entity would monopolise the entertainment business and lead to higher prices for consumers. Finally, a US court has decided in AT&T’s favour, allowing the deal to close without any conditions.

SURVIVING NETFLIX

Even if the US Justice Department appeals, the takeover is unlikely to fail in court as it is a ‘vertical’ merger — a merger of companies in different lines of business, and therefore gaining from the efficiency and synergy they add to each other. They are not a threat to competitive pricing as would be mergers of the ‘horizontal’ type, where merged companies in the same line of business can snuff out the competition.

AT&T CEO Randall Stephenson was not hiding his cards when he made it clear that the merger was for survival in the face of increasing popularity of newer media giants like Netflix and Amazon. In an interview to CNBC about four months ago, he pooh-poohed concerns that the AT&T-Time Warner merger would bring content creation, content aggregation and content distribution all under one roof. “Reality is the biggest distributor of content out there is totally vertically integrated. This happens to be somebody called Netflix.

They create original content, they aggregate original content and they distribute original content. They have 100 million subscribers. Look at Amazon, they’re doing the exact same thing,” Stephenson said. By comparison, he said AT&T has about 25 million video subscribers.

For much the same reason, that is to face the increasing influence of entertainment content producers and distributors — Netflix and Amazon — two old media powerhouses, Disney and Fox came together last December to fend off the new digital competition. The Walt Disney Company announced that it would acquire 21st Century Fox for $52.4 billion in stock, pending regulatory approval. Disney will acquire the Twentieth Century Fox film and TV studios, cable networks, including the successful Indian subsidiary Star India.

The merger is yet not over and there is an interesting challenge coming. Comcast, US’ largest cable distributor has thrown its hat in the ring with a $65 billion offer in recent days, higher than the Disney offer of $52.4 billion. The move is likely to trigger an intense bidding war. Fox’s board of directors is scheduled to vote on the Disney deal on 10 July 10.

FEWER PLAYERS, HIGHER PRICES

How should the consumer of entertainment see all this? There is obviously a clear shift away from the old forms of distribution and sale of entertainment content. Appointment viewing on television is passé, and cable distribution is fast evaporating in the face of high quality streamed content by Netflix and others which allows anytime, anywhere. In India too, this writer’s young sons have given up their Tata Sky connections for a Netflix and Amazon subscription, which gives more entertainment choice, and an ad-free environment; and news too is available through a couple of apps embedded on Netflix which offers better quality.  

And if you thought all this wasn’t about monopolies think again. The world of entertainment and news media has just become even more monopolistic. The world’s largest cable and internet broadband provider Comcast bought out NBC Universal in 2011. With Disney buying Fox, there will be five and not six super Hollywood Studios; and now AT&T and Time Warner are merging! There are fewer players producing more and expensive content. Production and marketing costs are humungous. New entrants and bit players will slowly but surely disappear. It’s going to be an all-American controlled world of entertainment. Which means you and I will pay more. Netflix started in India with a subscription of Rs 650 a month.

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