It's official: AT&T wants to buy Time Warner for a whopping $85 billion. For anyone who doesn't know, AT&T mostly sells telecommunications services: phone, cable, and internet subscriptions. Time Warner, on the other hand, mostly makes content: TV and movies.
This merger is important — not just because of the eye-popping amount of money involved — but because it heralds a new industry trend of telecommunications companies buying into media.
The internet has upended the media world. Thanks to the internet, much of today's digital media has no marginal cost of production. It costs zero to make an extra copy of a song, an article, or a movie. Even without piracy, this means that entrepreneurs will take advantage of this cost differential to offer lower-cost media, and that consumers will demand lower-cost media. This is causing media companies to carefully rethink their business models.
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For telecommunications companies (or "telcos" for short), buying into media makes sense. These giants are also threatened by the internet. In an industry where everybody is selling the same product — access to the web — it becomes very difficult to differentiate between companies, and competition becomes a matter of ruthless cost-cutting. Telcos fear becoming like the airline industry, where price competition rules the day, consumers only care about getting the cheapest flight, and no company can eke out a profit.
An obvious answer is to do what management consultants call "moving up the value chain." Time Warner owns HBO. If AT&T owns Time Warner, AT&T now has something Verizon doesn't: It can offer customers a sweet deal on HBO subscriptions.
We'll probably see many more deals like this in the near future. In my own country of France, this kind of thing has been happening for a while. During the heyday of the dotcom bubble, Vivendi became a conglomerate based on the strategy of owning "both the container and the content." For that particular company it all came crashing down when the bubble popped under a mountain of debt, but the strategic insight was sound. More recently, the cable conglomerate Altice has been buying up media companies left and right.
What does this mean for the future of media?
Well, actually, it's probably a good thing. Producing good content costs money, and that money has to come from somewhere. It's going to come less and less from consumers directly (even if they still pay, they'll pay less — Netflix has less revenue per customer than HBO, Kindle books cost less than physical books, an iTunes movie is cheaper than a DVD, and so on). And as the endless sea of content reduces the average rate at which average inventory is sold, advertisers will pay less, too. So it's possible that, more and more, the money for producing content will come from companies that subsidize media for strategic reasons. And as far as philanthropists go, telecommunications conglomerates are probably better bets than, say, Russian oligarchs.
There is no such thing as an unbiased news organization or a perfect creative ecosystem. The question is not whether such tensions exist, because they always have and always will, the question is how bad are they, and can they be managed? For many years, NBC was owned by General Electric, a global financial-industrial conglomerate with a finger in countless industries, and yet NBC News was a respected news-gathering organization. Companies that own media do have a reputational interest in preserving their independence, whether creative or political. And, honestly, if it weren't a telecommunications companies vying for media companies, it would be something else: advertisers, Google and Facebook's algorithms, Apple's distribution schemes.
As far as these things go, this ink-stained wretch welcomes his new telco overlords.
