In this clip from Industry Focus: Consumer, host Vincent Shen is joined by Fool contributor Daniel Kline, and the two discuss what AT&T would do with Time Warner if it can get the purchase past federal regulators. The two talk about how AT&T could leverage this content to push its subscription products, noting that there might be regulatory push-back on doing that.
In addition, the pair discuss how a content company will merge with a revenue-driven brand that may not understand the creative side. Both agree that there are a lot of benefits to this merger but note that what looks good on paper does not always work out in real life.
A full transcript follows the video.
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This podcast was recorded on Oct. 25, 2016.
Vincent Shen: If you look at the deal announcement press release, both CEOs of AT&T and Time Warner -- that's Randall Stephenson and Jeff Bewkes, respectively -- they've been making the rounds, trying to sell regulators and the public at large on this deal, why it's great for the two companies, why it's great for the shareholders, and allegedly great for consumers as well. I think the deal announcement, the press release rattles off plenty of the benefits. But when it comes down to it, what do you see as the core rationale of how this would work, especially on the AT&T side, when it's a combined entity?
Dan Kline: On paper, there are lots of benefits. On paper, when Time Warner and AOL merged, there were lots of benefits. It looked great. On the AT&T side, what they're getting is the differentiators as to why you would put DirecTV over another service. If they could have a premium HBO offer -- maybe HBO would only be $7.99 a month, whereas on Comcast, it would be $14.99 a month. There's obviously some regulatory concerns with that. You look at the HBO deal with Jon Stewart, which is going to be exclusive content. HBO would have all sorts of ways to entice subscribers. They might be able to say, "TBS, TNT, CNN, those don't count against your data plan if you're streaming them over our wireless network." So they get all that leverage when it comes to content. It's easy to see why you would think that would work. But it's also hard to see how the two cultures are going to match. That's ultimately why AOL and Time Warner fell apart. It was an old-line media company with a new-line media company. Now, you've got this incredibly creative content company -- which Time Warner has become, you can make fun of the creative level of the DC movies all you want, but that's what it is -- and you're matching it with this subscription, numbers-driven business. That's not such an easy fit, but on paper, it looks great.
Shen: Absolutely. Just right there, you mentioned three revenue synergies, or ways that they could package that distribution and content creation side. Honestly, that's just the tip of the iceberg. Some of the possibilities, if you really think about the number of properties and the reach that AT&T specifically has with its various wireless and internet subscribers, it's pretty mind-boggling, some of the different ways they can find to innovate and offer attractive services, exclusive content to consumers.
Kline: Yeah, if you just take something really small like Adult Swim -- the challenge with cable is reaching millennials. Adult Swim has those kids as they grow up, when their parents are still paying for cable. If you could take some of that content, which is, of course, already available online and all sorts of other formats, but port it over onto an AT&T-exclusive video platform, then all of a sudden you have an AT&T product that maybe T-Mobile or another cable rival can't offer. So it really gives AT&T an awful lot of tools that they can leverage, if they're willing to figure out the content game. And that's the part that scares me.