Apparently the $48.5 billion merger deal with DirecTV last year was not enough for AT&T. According to a Bloomberg report, the company is in talks with Time Warner Inc for a “possible merger.” Sources said the two companies’ top management reached preliminary talks for a merger deal or other types of agreements.
The report which surfaced Tuesday pushed Time Warner’s share up by 4.7 percent.
Time Warner is currently the owner of Warner Bros., HBO, TBS, CNN, and Cartoon Network. Both companies declined to comment on the disclosure.
If the merger moves forward to completion, AT&T would become one of the world’s largest entertainment and communications behemoths. It would have more power over the U.S. cable TV than before as it would comprise a major content maker.
AT&T already has one of America’s largest mobile networks and owns some of the most important TV channels in the industry. Warner Bros., which is currently Hollywood’s largest TV studio, owns a wealth of characters such as DC Comics heroes, Looney Toons, and Bugs Bunny.
The takeover would turn AT&T into a larger cable giant than Comcast due to its mobile phone business. AT&T’s pay-TV service prides itself in over 25 million customers, making it the nation’s largest.
However, experts don’t believe such merger would be a good idea for customers. AT&T already has a huge monopoly on the nation’s cable TV business and Warner Bros creates much of the content for the business. So, merging these two would just give AT&T even more monopoly power.
AT&T now plans to expand into the entertainment business for at least a three reasons. First, TV cable profits are shrinking as online actors such as Netflix grab an increasingly larger pie of the market. Netflix doesn’t have to pay too much for infrastructure so it can focus on producing original content.
Second, AT&T’s mobile phone business has no room for growth as the U.S. market matures. And last but not least, producing content is much more profitable as the company can lure in new customers. Especially younger customers watch content on their mobile devices.
AT&T bought the satellite TV provider DirecTV for nearly $49 billion in July 2015. For this year, the telecom plans to unveil a streaming service that would rival conventional TV operators.
It is not clear how much the new deal would be worth. Time Warner’s value stands around $65 billion. In 2014, Rupert Murdoch’s 21st Century Fox tried to acquire the company for $75 billion. But the deal was dropped because of pressures coming from both sides. Both Time Warner’s CEO Jeffrey Bewkes and the board, which Bewkes chairs, opposed the deal. And so did Fox’s shareholders, who sent its stock price down.
Time Warner as well has shown a real interest in digital media in recent months. Eighteen months ago it rolled out HBO Now, while this summer, it bought a 10 percent stake in Hulu. The streaming service is co-owned by 21st Century Fox, NBCUniversal, and Walt Disney.
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