AT&T Should Sell WarnerMedia

AT&T Should Sell WarnerMedia

AT&T’s acquisition of Time Warner seemed like a good idea at the time. That is no longer true.

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AT&T’s $85 billion acquisition of Time Warner seemed like a good idea when it was first kicked around a few years ago. AT&T would differentiate its fiber and mobile connectivity businesses with proprietary content. However, with each passing year scale and strength of balance sheet increasingly mattered as content production, marketing and distribution became increasingly expensive.

In short, AT&T lacks the scale to compete with Comcast and Verizon on the connectivity side while simultaneously competing with Disney, Netflix, Amazon and others on the content side. Something’s got to give. In our view the answer is not to recruit a new WarnerMedia CEO to replace AT&T COO John Stankey but to sell WarnerMedia.

WarnerMedia’s two natural buyers are Disney and Netflix. Amazon is pursuing more of a content partnership strategy and Google is pursuing a “free with ads” content strategy on YouTube. Apple is the sleeping giant. We suspect that once Apple gets a handle on Apple TV+ post-promotion attach rates, it will decide whether it wants to double-down on content. If so, Disney‘s direct-to-consumer business is the obvious target for Apple. With respect to Disney, the question is would the FTC allow it to own another trophy content portfolio (Disney owns Disney animation, Pixar, Marvel, 20th Century and Lucasfilm). Netflix desperately needs proprietary content as content continues to peel off of its platform. WarnerMedia would provide additional high quality content to fill Netflix’s distribution platform. WarnerMedia brands include HBO, HBO Now, HBO Max, Warner Bros., TNT, TBS, truTV, CNN, DC Entertainment, New Line, Cartoon Network, Adult Swim, Turner Classic Movies and more.

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