AT&T’s takeover of Time Warner makes strategic sense for the shareholders of AT&T. The only surprise is that early rumours of Apple buying over Time Warner did not come to pass.
AT&T are primarily a telecommunications company. They already control the data flows and analytics and understand all the little things that make people/customers tick. However, what they’ve not had is the content that their customers require and monetise the flow of content to the people who need it most.
Through the acquisition of Time Warner, it reduces AT&T’s transaction cost of providing the content to customers which is supported by superior data.
It’s akin to an infrastructure company laying pipes to bring water to households actually now providing the water along with the pipes they already have rather than have a separate company providing the water.
Why content matters
You have data on the information and content your customers require. However, you cannot act on the data yourself if you do not control the development of the content and intellectual property (IP). You can either try and create the content on your own or simply buy the largest available content provider available for sale.
This is what AT&T have done and it allows them to suddenly use the data and deliver even larger profitability to their shareholders by giving their customers the data they seek.
HBO (think Game of Thrones, Curb Your Enthusiasm, The Sopranos, etc), CNN, DC Comics (Superman, Batman, and the new UN ambassador, Wonder Woman), Hulu (Netflix’s rivals) are all now going to be under AT&T’s control.
This will allow them to control the entire spectrum of services they provide to customers and create an ecosystem (of both infrastructure and content) that may be difficult or unfeasible to leave for any customer.
Big data just gotten bigger
You know HOW your customers access information. You now know WHAT information your customers seek. Bring the two together and you create superior propositions for customers which rivals are unable to match.
The advertising potential also has now grown exponentially as AT&T monetise the data analytics and provide superior insight to advertisers.
Bringing the fight to the competition
The moment Google and Facebook moved from being search engines or networking platforms to becoming media and content companies with their own telecommunications infrastructure, the fight was on.
Facebook and Google are already providing Internet and call facilities. They also started buying or developing content facilities (Youtube acquisition by Google or Facebook Video/live).
This mean either existing telecommunications companies get into the business of content development or acquisition or they themselves get acquired. I suspect this was a major impetus for AT&T in their decision to buy Time Warner.
It’s always easy to bite, but it’s important to be able to chew and swallow. It remains to be seen how well the merger itself works. Most mergers are fraught with complications, from realising business benefits to cultural differences.
It will be interesting to examine Apple and Google’s next reactions. Google have developed their own hardware (Pixel) and Apple have long wanted to get into the business of content and IP.
Perhaps a takeover of Netflix by Apple in the offing?