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Is AT&T-Time Warner Deal a Step Ahead in Media Consolidation?


On Jun 12, a federal judge cleared the way, allowing AT&T Inc. T to acquire Time Warner Inc. TWX for $85 billion. The long-awaited judgment certainly has brought a sigh of relief for Comcast Corporation CMCSA, as the company on Jun 13 announced a $65 billion bid for Twenty-First Century Fox, Inc.’s FOXA assets that are at presently in the process of an agreement to be acquired by The Walt Disney Company DIS.

This certainly has paved the way for a media consolidation at a time when online streaming giants like Netflix, Inc. NFLX and Amazon.com, Inc. AMZN are fast invading their space and changing the entire ballgame. As the directors of Fox vote for the Disney deal on Jul 10, it now needs to be seen how the media landscape shapes up in the days to come.

AT&T and Time Warner Deal Helps Comcast

Comcast finally placed an all-cash bid of $65 billion to acquire Fox’s television and film assets, in a move to derail Disney pending deal of $52.4 billion. It goes without saying that Comcast was waiting for the judgment on AT&T’s bid to acquire Time Warner after the Justice Department had sued to block the merger.

The recent judgment certainly has given Comcast the confidence to bid for Fox’s television and film assets, which is at a 19% premium to Disney’s offer. However, before entering into a deal with Disney, Fox had rejected Comcast’s offer to buy its assets, citing it as too risky despite the bid being higher. Comcast’s recent announcement definitely is a fresh challenge to both Fox and Disney.

Comcast has graduated from a cable television giant to a diversified media company. Taking over Fox makes sense to Comcast at a time when its rivals are scaling up. Charter Communication, Inc. (CHTR) is already working on mobile expansion, while AT&T buying out Time Warner is in a move to enhance its pay TV and digital content. Given this scenario, taking over Fox will only strengthen Comcast’s broadcasting arm.

Media Convergence in the Works?

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The biggest story amid all these is the growing competition from streaming giants. Broadcasters have realized that tech companies with their digital content are giving them a run for their money. The Justice Department’s argument was that AT&T could use its new position to exorbitantly raise the prices on cable operators that want to run Time Warner programs.

However, AT&T will now be able to directly compete with the likes of Netflix and Amazon. At the same time, it will also allow the mobile-phone giant to create fair competition among cable operators and increase the cost of visual entertainment, thus consolidating the entire media ballgame.

Understandably, the acquisition war is a survival strategy. Amazon and Netflix are taking the game away from traditional broadcasters, with television becoming almost obsolete. Amazon has a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

In fact, Netflix has already said that it will dedicate $8 billion in 2018 solely to content. Also, Comcast’s decision to add Netflix to its bundled offering further proves the growing demand for online content. Given this scenario, it makes sense for broadcasting giants to only diversify their portfolio.

Moreover, the merger might further pose a fresh challenge to the likes of Alphabet, Inc.’s GOOGL Google and Facebook, Inc. FB, which dominate the online advertising space. If AT&T now decides to combine it broadband, mobile and Direct TV services with Time Warner’s films, television shows and sporting events, it could further intensify competition with tech companies.

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