AT&T CEO Randall Stephenson and Time Warner chief Jeff Bewkes hit the ground running Monday morning to sell Wall Street, consumers, and media watchdogs on the merits of the $85.4 billion merger unveiled less than 48 hours ago.
Stephenson and Bewkes made joint appearances on CNBC’s “Squawk Box” and CNN’s “New Day” before hosting a 70-minute conference call with analysts — all before 10 a.m. ET.
The CEOs tried to demonstrate extreme confidence that the union of the two media giants will pass muster with regulators — with conditions — won’t leave AT&T with an unmanageable debt load, and will be good for consumers in the long run. Perhaps the boldest claim they’re making is that AT&T and Time Warner will drive innovation in mobile video distribution, interactive, and on-demand programming services that will be so groundbreaking as to entice competitors to take part.
Stephenson emphasized that the DirecTV Now package of streaming channels that is set to launch next month is the tip of the spear for products AT&T hopes to develop. AT&T wants to take advantage of the programming rights it has through DirecTV and also bundle its high-speed data networks.
“There are a lot of things we aspire to do on this platform,” Stephenson said, citing the ability to incorporate social media with programming and making it easy for viewers to share clips across platforms and devices. “We know our customers are really demanding that,” Stephenson said during the analysts’ call. “We are both convinced that as we innovate in this way and as we accelerate the pace of this innovation, it’s going to attract others to want to do the same on these platforms.”
Bewkes pressed the benefit of Time Warner’s content businesses having access to data and consumer viewing insights that AT&T gathers from its wireless networks and DirecTV. That sounds like a cue from Netflix’s algorithim-attuned content development playbook.
“There’s a the huge opportunity to utilize consumer insights to inform content creation that allows us to continue to create not just the biggest hits, but also content and programming that really engages with passionate niches in the audience,” Bewkes said. “We’ll be able to do that more efficiently while also innovating new subscription and advertising models to increase consumer choice.”
Bewkes said the same logic applies to the combined company’s ability to serve up advertising across the DirecTV platform, on the various Turner channels, and the direct-to-consumer products that have been percolating within Turner and Warner Bros.
“We can make the advertising more interesting for your house versus somebody next door,” Bewkes said. “Consumers get a better viewing experience and they get less interruptions.” Bewkes predicted that advertisers will pay more for better targeted ads, allowing content creators to plow more resources into programming.
“The benefit for advertisers is terrific. If you look at what’s happening in that world, advertisers need more competition,” Bewkes said. “This will give (advertisers) another outlet — not just Google and Facebook that (have) been gaining all the traction — but you have another advertising option that’s really efficient.”
Stephenson echoed Bewkes’ comments that the deal will be consumer-friendly by allowing the combined company to offer a wider variety of programming and data packages at an array of price points. All of the pro-consumer chatter and talk of sparking competition in new markets is designed for the ears of regulators who will dissect the deal. AT&T has projected it will close by the end of 2017.
Stephenson hammered the message that AT&T and Time Warner amounts to a vertical marriage, or a “bolt-on” acquisition. Time Warner will operate much as it does now as a subsidiary of AT&T — a message likely designed to assure Time Warner’s 23,000 employees that the locus of activity will not be shifting to AT&T’s Dallas headquarters.
Bewkes has said he will step down once the merger is complete, but the timing of his departure could be “years” out, given the length of the regulatory review and the need to ensure a smooth integration. Stephenson was quick to stress that he will defer the management of the content business to Bewkes and the existing teams. “I don’t know how to run a movie studio,” Stephenson, a telco biz vet and native of Oklahoma, said flatly on CNBC.
Stephenson noted that the mergers that have been torpedoed by federal regulators in recent years have been “horizontal” market share grabs that would remove a competitor from a specific sector, including AT&T’s 2011 bid to acquire wireless rival T-Mobile.
“This has none of that,” Stephenson said on CNBC. “We compete nowhere. We are not talking about changing how the content is made available to other people or customers or distributors. It’s a pure vertical integration. … Those are always remedied by conditions imposed on the merger and so that’s how we envision this one to play out.”
The concerns raised that AT&T would seek to leverage its ownership of HBO, TNT, TBS, CNN, Warner Bros., and other premium outlets by making them available exclusively on AT&T platforms in a bid to drive subscriptions is “nonsensical,” Stephenson added.
For sure, a big part of the appeal of Time Warner to AT&T undoubtedly is its baked-in affiliate fee deals with every major MVPD going out several years. The landscape for channel distribution is very much in flux, but for the next two to three years at least Time Warner can count on double-digit affiliate fee growth thanks to deals hammered out within the past three years.
“They’ve built this amazing franchise distributing their content broadly and deeply all over the world,” Stephenson said on CNBC. “The idea that we’re going to come along and start constricting the distribution of this content makes no economic sense.”
Bewkes was also pushed on the logic behind the benefits for Time Warner aligning with AT&T when the company made the decision to spin off its own Time Warner Cable unit in 2009. At the time Time Warner Cable was No. 2 among cable operators to Comcast. But Bewkes said it was still a regional cable company that didn’t compare to DirecTV’s national footprint. What’s more, 2009 was a long time ago in the world of media.
“The world’s much different now. You have net neutrality in place, you have broadband distribution and mobile as an ever-bigger part of the distribution package and you have a lot of incoming new distributors or competition coming from FaceBook, Netflix, Google and Amazon,” Bewkes said during the analysts’ call. “As the distribution world changes, having distribution capabilities to innovate on mobile, across broadband … it allows us to have our networks be more attractively offered to consumers.”
(Pictured: Jeff Bewkes, Randall Stephenson)