Michael Wolff on AT&T's Time Warner Deal and the Coming Game of Dominoes
AT&T is seeking to take Time Warner — the second-greatest content library next to Disney — out of play, which therefore puts all other content makers in play, accordingly raising their value, and, at least in the short term, making AT&T look smart.
Wait. AT&T? AT&T?
The 30-year fallacy of media consolidation has been that anybody can own a media company. That it’s about management and not temperament. Sony, a Japanese consumer electronics company, bought CBS Records in 1988 and Columbia Pictures in 1989. This was after Coca-Cola bought Columbia in 1982. General Electric bought NBC in 1986. Westinghouse, a manufacturing company, bought CBS in 1995. Universal was first bought by Matsushita, another Japanese consumer electronics company, in 1990, then Seagram’s, the spirits company, in 1995, then Vivendi, a French water company, in 2000. That same year, AOL, an online service and dial-up ISP, bought Time Warner. All of these deals — all of them, save for Sony’s studio venture — were ultimately undone and provided cautionary lessons, foremost among them that creative enterprises tend to form a closed culture that eschews, frustrates and often fleeces outsiders.
But those lessons hardly stopped the search on the part of media companies for new partners and more investment dollars and greater size, or the belief on the part of benighted outsiders that they could bring rationality to the irrational. At root, you had the fact that media — the definition becoming ever-more vague and inclusive — was one of the world’s most competitive businesses and one of its largest, therefore, even given its peculiarities, it must yield to the realities of large and competitive businesses. Mustn’t it?
While most media people might suppose, with a doleful eye roll, that if AT&T succeeds in its $85.4 billion bid for Time Warner, it will result in a hapless disaster, inevitability overwhelms logic. Moments of consolidation — this one framed by the rise of mighty tech distributors, uncertainties in the business models of media companies and a sense that everyone has, anyway, just been waiting for the other shoe to drop — make for strange bedfellows.
The business of AT&T, a company whose identity and purpose has become ever less clear over years of mergers and acquisitions (AT&T is in fact not really AT&T but Southwestern Bell Corporation, which changed its name after it acquired AT&T in 2005) is largely concentrated in the details of communications infrastructure, once a monopoly business, now an increasingly fraught one. Hence, AT&T is looking to hedge its bet by owning some of the commodity that it provides through that infrastructure. Time Warner, which once owned its own delivery infrastructure but decided that the content-maker-distribution-provider business model wasn’t an efficient one, now sees premium value in letting someone else pay to find that out on their own. In fact, no one has ever been able to make the economic case that content makers and distribution providers yield more than 1+1 when put together, with every content maker needing to sell its wares to every distributor (it is invariably cheaper to license than to buy). And, for the last decade or so, the media business has largely considered the merger of content and distribution to be fool’s gold. But a new case for this old case is now being made involving the pace of transformation owing to digital distribution (it’s a totally new, mobile world, stupid!). Time Warner’s own disaster in this regard, once before being bought by an internet provider, AOL, should be warning enough. But irony is not a business analysis.
Inside Time Warner there is said to be considerable regret, although little hesitation, about putting the company in the hands of AT&T. It is hard to imagine that media sensibility and pop culture astuteness are going to flow seamlessly from the Dallas-based company and its CEO, University of Oklahoma MBA and Boy Scouts of America president Randall Stephenson (snobbery alert). Time Warner, steeped in New York and Hollywood Jewishness, awkwardly joins the Texas born-agains. But Time Warner’s CEO, Jeffrey Bewkes, a most rational man, quite to a fault, having promised and failed to boost his share price to $100 following his rebuff of Rupert Murdoch at $85 a share two years ago, understood now was his opportunity to embrace success with AT&T’s $109-a-share offer.
The best-case model for this deal is in essence a flat case. While NBC did not grow at the rate of its competitors, it didn't crater either when it was bought by industrial holding company GE, nor has it since it was taken over in 2011 by pipes company Comcast, which if it hasn’t particularly benefited hasn’t suffered either. But even here, Comcast has long been in the content business — it’s a massive licensor of content and as hit-sensitive as all media businesses; and, too, the Roberts family, which controls Comcast, and all its top executives, have for several decades ridden the ego trips of media moguls. AT&T, other than its purchase of DirecTV last year, has no experience in the content, programming and popular culture business (in 1999, AT&T acquired TCI, then the biggest cable provider, a disaster undone in the sale of these cable assets to Comcast and Charter). In contrast too, the acquisition of NBC by GE was helped by the fact that GE chief Jack Welch was a media hound himself, much more partial to television than to light bulbs. Randall Stephenson, on his part, is a cipher in the media world.
Of course, inexperienced outsiders believe they can buy experienced insiders. This has already started a competition for extremely expensive management talent, presaging an inevitable arrival of overweening egos at a company not accustomed to much personality no less fabulous ones, and, one might anticipate, clashes on a heroic and nuclear scale. (Note: even among media companies, Time Warner is famous for its fight-to-the-death fiefdoms.)
With Bewkes gone, his heir apparent, John Martin is likely to be out too, with the betting for the new Time Warner chief on Peter Chernin, the former News Corp COO who operates a small joint venture with AT&T, even though he has been out of big-company management for seven years. CNN’s Jeff Zucker who, having worked for GE when he ran NBC, might be considered a more logical bridge to AT&T and, if rebuffed, might likely be open to the Murdoch sons' interest in having him come to run Fox News. (Such speculation has led people inside AT&T — having a moment of being blinded by the stars — to a suggestion of hiring former Fox chief Roger Ailes to run CNN and turning media as we know it inside out.) Or, reaching higher than Chernin to CBS’ Leslie Moonves, who has long coveted Time Warner, to run the show. In this tasty scenario, hiring Moonves could frustrate current efforts to combine CBS and Viacom, making one or both acquisition targets themselves.
Indeed, this is, as much as anything, a game of dominoes, of AT&T seeking to take Time Warner — next to Disney the second-greatest content library — out of play, which therefore puts all other content makers in play, accordingly raising their value, and, at least in the short term, making AT&T look smart. Of course, if the primary digital platforms — Apple, Google, Amazon, Facebook — fail to take the bait and continue to eschew content deals, that would tend to make AT&T look very dumb.
Indeed, a big danger is that AT&T, along with its most direct competitor, Verizon, seeking a currency in the media business with its purchase of AOL and recent deal for Yahoo, while believing themselves to be new media players, are, in fact, very much the stodgy and hoary companies of old that they appear to be. If so, they are exactly who should not be at the forefront of the next media age.