Prepare for a deluge of headlines about tech and entertainment. News accounts today suggested that Amazon’s interest in buying MGM—which we first reported a week ago—could lead to a deal this week. As we have noted, one reason for the deal is that Hollywood outsiders like Amazon that operate streaming services are finding it harder to get their hands on programming, because the traditional suppliers are holding onto movies and shows for their own services. That makes buying a studio more logical.
In the greater scheme of things, though, this deal is a minor development in the evolution of video streaming. Bigger picture, a more interesting development is the idea—flagged today by AT&T CEO John Stankey—that those companies which succeed in video streaming globally in the next couple of years will end up diversifying into other kinds of content such as music and videogames. That raises all sorts of possibilities for future mergers among companies across the streaming spectrum. Spotify-Netflix, anyone?
Stankey mentioned the idea while explaining AT&T’s decision to unload WarnerMedia, owner of HBO Max. Speaking at an investor conference sponsored by JP Morgan, Stankey noted that streaming is a global opportunity that AT&T, a U.S.-focused telecom firm, isn’t well-positioned to take advantage of. Going global will also require a big investment, hence the exit. But Stankey sees, probably correctly, that over time, the most successful services—most obviously Netflix, Disney, and maybe HBO Max—will draw in large numbers of subscribers and that they will be able to add other kinds of content. Netflix is clearly thinking of that, at least for gaming, as we reported last week. But what are the other implications?
Spotify could benefit. The music streaming service needs some more heft to deal with companies like Apple, a powerful gatekeeper in mobile as well as a rival to Spotify in music streaming. A merger with Netflix would give the combined company more power to fight Apple. Gaming is arguably a more open field but you can see Microsoft, which has now built up substantial gaming assets, ending up in a partnership with HBO Max, say. Whatever deals get done eventually, we should start thinking about streaming in a more multifaceted way.
TIME WARNER'S CHOICE
Since AT&T announced last Monday it was abandoning Hollywood, there has been a lot of (understandable) gnashing of teeth about the money and time wasted by the telecom firm on its short-lived adventure in entertainment. But what about the poor shareholders in Time Warner, who got a mix of AT&T stock and cash for their shares back in 2018. How have they fared?
Not as well as 21st Century Fox shareholders have done from the acquisition of that company by Disney, which closed in 2019. A Time Warner shareholder who held onto the AT&T stock they received in the acquisition would have seen those shares appreciate about 11% in the past three years. Including dividends, the return would be closer to 30%. In comparison, a Fox shareholder would have seen a 60% return on the Disney shares they got two years ago, not including a small dividend payout.
Those contrasting outcomes take on a greater significance in the light of the New York Times’ report this morning that back in October, 2016, a couple of weeks before the AT&T-Time Warner deal was announced, Disney’s then-CEO Bob Iger had called Time Warner’s then-CEO Jeff Bewkes to inquire about his interest in a deal. According to the Times, Bewkes said it was too late. (Another version I heard today was that Bewkes said he needed some time to get back to him and, of course, time ran out.) Either way, Bewkes didn’t pursue Iger’s approach. Notably, when Time Warner detailed the background to the AT&T offer in a securities filing before a shareholder vote, no mention was made of the Disney approach.
Why did Bewkes pass up the opportunity for what now appears would have been a better deal? At the time, the view inside Time Warner was that a Disney-Time Warner deal wouldn’t pass muster with antitrust regulators, as it was combining two of the biggest companies in the industry. In contrast, AT&T was expected to have an easy time with regulators because it didn’t own a studio and TV channels. Moreover, AT&T’s offer was seen as very generous—a big premium to Time Warner’s stock price.
All of these beliefs would turn out to be wrong. Disney, as it turned out, had no problem getting approval for the Fox deal that was negotiated in 2017 while the AT&T-TW merger got slowed by the Trump administration. This is all academic now, but it does raise the question of why AT&T didn’t look around more broadly before selling to Discovery. Are there other potential bidders who would have paid more? Let’s hope we don’t have to wait five years for the answer.
IN OTHER NEWS…
- Online video company Kuaishou, a major Chinese competitor of TikTok owner ByteDance, said its revenue for the quarter through March rose 37% thanks to robust growth in ad sales, while its losses widened.
- Proceedings in the Apple-Epic trial concluded and the two companies will now await the judge’s ruling, which could come this summer.
- Florida’s governor signed into law a bill that would allow social media companies to be fined for banning political candidates for statewide office. The law is likely to be challenged in court, the New York Times noted.
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