AT&T and Time Warner executives have reportedly been huddling over the past few weeks to kick around various business strategies, including a possible merger.
Bloomberg, citing unnamed sources, reported that the discussions to date have been informal and more about building bridges between the two companies, as opposed to specific terms for a merger.
Coming off the heels of last year's purchase of DirecTV for $48.5 billion, as well as money spent in a spectrum auction, AT&T Inc. (NYSE: T) would need to go hat in hand to come up with the funds to buy Time Warner Inc. (NYSE: TWX) outright.
According to the Bloomberg story, Time Warner CEO Jeff Bewkes is a willing seller, and he has, along with the Time Warner board, already turned down an $85-a-share offer from Rupert Murdoch's 21st Century Fox two years ago. That prospective deal valued Time Warner at $75 billion, Bloomberg reported.
The big attraction of any sort of deal for AT&T CEO Randall Stephenson would be using Time Warner as a springboard to becoming a media and entertainment conglomerate, similar to what Comcast Corp. (Nasdaq: CMCSA, CMCSK) did when it scooped up NBCUniversal.
While Time Warner has cable networks such as CNN, HBO and Comedy Central, the main attraction for AT&T would be serving up that Time Warner video content (Game of Thrones is the ubiquitous HBO example) to millennials. (HBO Now has proved to be a premier model for offering an OTT service without paying for a cable subscription.)
The Time Warner content would go hand-in-hand with AT&T's Internet-based DirecTV Now TV service, which will include an OTT app.
It's interesting to note that if such a deal did go through, AT&T would find itself on the other end of the carriage agreement table, as did Comcast after it picked up NBCU, when it comes to negotiating with other video service providers.
And going back even further, Time Warner spun off Time Warner Cable in 2009, the latter of which is now owned by Charter Communications Inc. That same year, Comcast and Time Warner launched one of the first iterations of TV Everywhere. (Circle of life, circle of life.)
Does it make more sense for AT&T to strike a licensing agreement with Time Warner instead of buying it? Whatever happens between AT&T and Time Warner, AT&T has signaled that it's serious about adding media and entertainment to its portfolio of pay-TV, wireless and broadband services. That may not scare Netflix Inc. (Nasdaq: NFLX), but it could cause other video service providers and MVNOs to perk up their ears a bit.
— Mike Robuck, Editor, Telco Transformation