Credit Thos Robinson/Getty Images for The New York Times
âYou had a lot of people saying you shouldâve combined a donkey with a rabbit and gotten a flying unicorn.â
That was how Jeffrey Bewkes, the chief executive of Time Warner, once described his companyâs colossal failure of a merger with AOL. He spent the last decade dismantling much of his company in the name of âfocus,â spinning off his cable business and magazine empire.
And yet over the weekend Mr. Bewkes agreed to sell Time Warner to AT&T for $ 85 billion in a deal that, if approved by regulators, will vastly reshape the media and telecommunications world â and ultimately the way Americans will consume and pay for their favorite television shows.
There was a good reason that Mr. Bewkes had been skeptical of big mergers that combined distribution and content: They are complex and hard to make successful, and they invariably face enormous headwinds from regulators, who will undoubtedly tie their hands in an effort to protect consumers from anti-competitive behavior.
âLetâs be honest, prices arenât going to go down because of this,â said Rich Greenfield, a media analyst at BTIG Research. âI donât think vertical integration lends itself to consumer benefits.â
Already, Donald J. Trump has denounced the acquisition and said, âWeâll look at breaking this deal upâ if he were president. Tim Kaine, Hillary Clintonâs vice-presidential nominee, said he was concerned about the transaction. âLess concentration, I think, is generally helpful, especially in the media,â he said on âMeet the Press.â
A raft of consumer-protection groups are already girding for a fight. And media and telecommunication rivals are hinting that they are prepared to battle the deal in Washington. âA transaction of this magnitude obviously warrants very close regulatory scrutiny,â a spokesman for Disney said.
The worry among consumer groups and rivals, of course, is that for AT&T to make the deal work strategically and financially â the company is paying a 35 percent premium to Time Warnerâs stock price before news of the deal broke last week â it is going to use Time Warnerâs content as a weapon against its rivals by raising the price that they pay for carriage of channels such as HBO and CNN, while integrating those same channels into new AT&T offerings at lower prices.
Randall Stephenson, AT&Tâs chief executive, dismissed that notion in an interview on Sunday, calling it âillogicalâ and saying he wants to âdispelâ such an idea. He insisted he has no intention to limit Time Warnerâs content on rival systems and that âit doesnât make business senseâ to restrict the distribution of Time Warner programming.
Instead, he said, he sees the benefits of the merger coming from the additional data AT&T will be able to provide to Time Warner â and advertisers â about what consumers are watching, as well the ability to create specialized, interactive programming for AT&Tâs mobile customers that he expects other distributors will copy.
Credit Yana Paskova for The New York Times
Still, he suggested that his ultimate goal is to create a wireless network using next-generation technology known as 5G that competes not just with wireless providers, but with cable companies, by providing high-speed broadband and television service. âI will be sorely disappointed if we are not going head-to-headâ with cable providers by 2021, he said.
That notion may be both attractive and unattractive to regulators. On one hand, AT&T would be able to finally create real competition for cable companies, which have long held monopoly or duopoly positions in most markets. Owning Time Warner, Mr. Stephenson said, would âdrive our incentiveâ to build out its next- generation network even faster.
On the other hand, regulators have been reticent to let cable companies merge to create a truly national footprint out of fear that it would put too much power into the hands of distributors; the government blocked Comcastâs acquisition of Time Warner Cable, for example.
But Craig Moffett, another veteran media research analyst, said he gave the deal only a 50-50 chance of being approved.
âYou can imagine lots of strategies that would involve withholding content from distributors or not counting downloads of Time Warner content against data caps,â Mr. Moffett said. âBut those things are either already expressly prohibited or will beâ as part of any arrangement AT&T and Time Warner make with regulators.
It is a question that Mr. Greenfield raised too. âIf youâre not going to be able to withhold HBO from Verizon, what exactly are you getting?â he asked.
Which raises the question: Why pursue the deal at all?
Well, there are some potential benefits. While AT&T probably wonât be able to use Time Warnerâs current crop of channels to bludgeon its competitors, it will be able to use Time Warnerâs creative team to devise all sorts of new programming options, many of which could become exclusive to AT&T.
Whatâs to stop AT&T, for instance, from creating a better version of Verizonâs Go90, a specialized original channel. Go90 hasnât caught on, but AT&T could leverage Time Warnerâs team to create the next-generation HBO â and that channel could likely be exclusive to AT&Tâs service.
Still, upstart companies like Netflix and Amazon Prime have proven that it is possible to create great original content without owning a legacy media company. Hire a couple of great creative executives and wave around a big checkbook, and you can attract high-quality scripts and headline-grabbing stars.
In the chess game that is the media industry â a tens-of-billions-of-dollars version of âGame of Thronesâ â perhaps owning Time Warner will give AT&T a jump-start into a world that many couldnât even imagine a decade ago. âItâs empire building,â Mr. Greenfield said.
Whether it proves to be a success or the âflying unicornâ that AOL merger turned out to be remains the question.
So as they say in the television business: Stay tuned.