Merger Mania

Now with Add On.

A big fat phone company will marry a big fat cartoon and movie studio.

AT&T Inc has reached an agreement in principle to buy Time Warner Inc for about $85 billion, sources said on Friday, paving the way for what would be the biggest deal in the world this year, giving the telecom company control of cable TV channels HBO and CNN, film studio Warner Bros and other coveted media assets.

The deal, which has been agreed on most terms and could be announced as early as Sunday, would be one of the largest in recent years in the sector as telecommunications companies look to combine content and distribution to capture customers replacing traditional pay-TV packages with more streamlined offerings and online delivery. ...

AT&T will pay $110 per Time Warner share in cash and stock, or about $85 billion overall, sources told Reuters. It will need to line up financing to pay for the deal, since it only has $7.2 billion in cash on hand. This could put pressure on its credit rating as it already has $120 billion in net debt as of June 30, according to Moody's. ...

Owning more content gives cable and telecom companies bargaining leverage with other content companies as customers demand smaller, hand-picked cable offerings or switch to watching online. And new mobile technology including next-generation 5G networks could make a content tie-up especially attractive for wireless providers. ...

Long ago, movie studios were just movie studios. This gave entertainment unions (of which TAG is one) a semi-level playing field when they negotiated collective bargaining agreements with the "content providers". If SAG or the WGA went on strike, the studios' cash flow would be squeezed and so there was motivation to reach a deal.

The "level playing field", which in truth was never ALL that level, is now more of a sheer vertical drop than ever. Studios are small cogs in huge corporate machines and the leverage of entertainment guilds and unions have been reduced accordingly. The merger will probably be blessed by the Federal government (they generally are), and are most excellent corporatist state will become a bit more corporatist.

It's difficult to know if this merger will increase the health of the entertainment industry or damage it. There's always the possibility that bigger won't necessarily lead to better or more profitable, and AT&T-Time-Warner might at some point flow apart. But for the moment, it looks as though corporate power in Tinsel Town will be more mammoth and more concentrated.

Add On: A brief history of Time, Warner Bros. and AT & T.