Silicon Valley's Hottest Innovations 2016

The Case for the AT&T-Time Warner Deal

The CEOs of the two companies argue that their merger is good for consumers — and competition

Published 7 years ago on Dec 03, 2016 5 minutes Read

AT&T Inc’s proposed $85.4 billion acquisition of Time Warner Inc is one of the biggest media mergers in years. Randall Stephenson, chief executive officer of AT&T, and Jeff Bewkes, chairman and CEO of Time Warner, sat down with The Wall Street Journal deputy editor in chief Rebecca Blumenstein to make the case for why the combination is good for consumers and should be cleared by regulators. Edited excerpts follow:

The $35 package
Blumenstein: I want to cut to the chase. Time Warner was bought once before. Why is it going to turn out better this time?

Stephenson: This deal was about one thing, and that was how can we change the game in this ecosystem, because if there was ever an environment that was begging for innovation it is this environment. 

You now have 20 million households that have left the premium-content system. They aren’t buying a bundle of premium content. They’re gone. And this is one of the things we’re trying to do. How do you begin to do something to access that segment of the market with premium content?

Blumenstein: So they’ve cut the cord?

Stephenson: Yes, they’ve cut the cord and they aren’t even engaged in the premium ecosystem anymore. And so we’re going to launch at the end of 

November a product that we think does this. It’s what this deal is about, and I think it’s important to understand it. We’re calling it Direct TV Now, and this is for the first time 100-plus premium channels. This isn’t the junk nobody wants. This is 100-plus premium channels, purely over the top, a mobile-centric platform, for $35 a month. It has all of Jeff’s content. It has all the premium content that you know and love. And that includes your mobile-streaming cost. It’s a game changer.

Blumenstein: So you’re making more news now by announcing this?

Stephenson: We haven’t announced the price point before, but we are announcing it right now. And as you think about people saying this is nothing but a way to increase prices, no, this is a way to drive pricing down in the marketplace. We think this is really important.

There was a lot of noise yesterday around what this new company will look like and what people should be concerned with. We have internally at AT&T what we call our Magna Carta, or the guiding principles, as we put these two companies together.

For AT&T executives with distribution assets, the No. 1 principle of the Magna Carta is to recognise that Time Warner will continue to distribute its content widely and broadly. AT&T won’t have exclusive access to it.

Principle No. 2, for when Time Warner comes in, is that our distribution businesses are going to continue to distribute a wide variety of content. That’s what the customers expect and want—100 channels of premium content. That won’t change. So, Time Warner, don’t expect that to be premium.

Blumenstein: So you’re vowing you aren’t going to take any price advantage?

Stephenson: We’re actually trying to bring prices down. At $35, you don’t find 100 channels in the marketplace with wireless streaming, right?

Principle No. 3, and this is to the AT&T board: “When you own a news company, independence is sacrosanct. You must protect the independent editorial privileges of that news organization, and to the extent that your customers deem otherwise, you’ve damaged the brand,” of a CNN, specifically. 

The fourth principle is: “Time Warner is going to become the launchpad for innovation. Time Warner is where we’re going to try to touch these third rails that the industry won’t and hasn’t touched.” It’s where we’re going to begin to experiment and test how to bring a-la-carte pricing into the ecosystem. It’s also the place where we’ll begin to develop new ad-support models. How can we develop new ad models that will allow us to keep the price point in check, offsetting the price increases on content? I think that’s really, really important.

The last element of our Magna Carta is, “We are going to be a head-to-head, nationwide competitor with the cable ecosystem.” And 5G deployment is a game changer. We will be a new competitor nationwide with 5G. And so the intent is to bring Time Warner and AT&T together and create a very new and a very different kind of competitor nationwide in the cable ecosystem.

Vertical combination
Blumenstein: Regulators and politicians, including Donald Trump and Tim Kaine, have come out swinging against the deal. Are you surprised by this?

Stephenson: Not surprised. They’re uninformed comments. Anybody who characterises this as a means to raise prices is ignoring the basic premise of what we’re trying to do here. Vertical integrations are rarely a means for raising prices. You aren’t changing the market structure in any way, shape or form. When we wake up after this deal is approved, the wireless market will look exactly the same as it does today and the media market will look the same as it does today.
Bewkes: Rebecca, we ought to talk about advertising, because if you’re looking into competition, this is going to be extremely helpful to increase competition in advertising. And I think since we are west of the mountains, at least where I live, we all need more competition in advertising. Because what we’ve been seeing is growing concentration to a duopoly in digital-enabled advertising.

Blumenstein: You’re talking Facebook and Google?
Bewkes: Yes, I am. And I know the Google and Facebook people, because we work with them. There’s one thing they love and that’s innovation and competition. And we are here to help. We are going to bring more of that. And that is basically a very good development for all media companies because when you create the ability to have the same kind of digitally powered advertising you get so many benefits.

Competition always helps consumers. And it gives advertisers better choices. But most important, it allows the consumer experience watching video to have more relevant ads, less intrusive and interruptive ads, therefore they’re more valuable. Therefore, more of the burden of cost of content goes to advertising
rather than to people.

Edited excerpts from an interview at The Wall Street Journal's WSJDLive 2016 global technology conference