AT&T finalized the takeover of Time Warner in late October that will pair a telecommunications behemoth with an esteemed content creator. But the so-called “vertical merger” faces unique challenges and echos from the past.
The AOL-Time Warner failed merger of 2000 is widely regarded as one of the biggest flops ever and this deal faces potentially similar challenges. With a price tag of $85.4 billion, AT&T’s need to pay off its debt might threaten the creative freedom of premium Time Warner brands like HBO and Warner Bros Pictures.
“It strikes me as some kind of perverse variation on the old Time Warner-AOL merger,” said Richard Ryan, a senior project management consultant who worked at AOL in 2004 and works with both telecommunications companies and content providers. “Just because they’re both happening in digital media doesn’t necessarily mean that there’s a fit at all.”
Ryan, like many others, recalls the wildly different company cultures of a young internet company trying to fit in with old school news and media. He also remembers little or no communication between the two companies. Though some executive tried to bridge the gap, it ultimately failed.
“Culture is what kills most mergers and acquisitions,” said Jim Nail, an analyst at Forrester. “Running a technology company versus running a content company are very different worlds.”
Nail sees two scenarios for AT&T CEO Randall Stephenson. Either he lets Time Warner keep doing what it already knows best, or he steps in to meddle and make it more like a technology company with reliable forecasting and low volatility. AT&T “will kill it” if it follows the latter path said Nail.
“Content is emperor,” he said.
Perhaps the most worrisome sign of similarities was when Steve Case, former CEO of AOL, learned of the new merger and tweeted, “#DejaVu.”
Eric Bagley, a independent content creator who works in the film industry is worried that AT&T would push out creatively risky movies and focus more on blockbusters that are profit machines, regardless of its quality.
“You can look at Disney and see their model has been to go with a Star Wars or a Marvel franchise and no matter how good or bad the movie is it’s a success,” Bagley said.
He cites Batman vs. Superman as an example. “Everyone says it’s a piece of shit yet it still makes half a billion or more,” said Bagley. “People still go to see it hoping the person who told them it sucks is wrong, or they get to join the conversation about how much it sucks.”
Warner Bros profits are driven by box-office, blockbusters such as Christopher Nolan’s Batman trilogy, the Harry Potter series and Superman movies.
So lower budget, high risk movies such as Spike Jonze’s “Her,” nominated for five Oscars with a 90 out of 100 on Metacritic, might never be made. “Her” was a limited release movie that only didn’t make hundreds of millions of dollars but could have easily lost millions.
The potential manipulation of content has one AT&T customer worried that he will be saddled paying for content he doesn’t want.
“As an AT&T customer I am worried that with this merger they will attempt to force cable and TV services down my throat in a last ditch effort to save a dying industry that should have been put out of its misery long ago,” said Jesse Medalia Strauss, founder and video producer of Forward Frame Media.