AT&T to pay $85B for Time Warner

NEW YORK -- AT&T is buying Time Warner, the owner of the Warner Bros. movie studio as well as HBO and CNN, for $85.4 billion, the companies said Saturday in a statement.

The acquisition would combine a telecom giant with a leading cellphone business, DirecTV and Internet service with the company behind some of the world's most popular entertainment, including Game of Thrones, the Harry Potter franchise and professional basketball. It would be the latest in a scramble of tie-ups between the owners of digital distribution networks -- cable and phone companies -- and entertainment and news providers, all aimed at shoring up businesses upended by the Internet.

Regulators would have to sign off on the deal. Shares of AT&T, as is typical of acquirers in large deals, fell on the reports, ending Friday down 3 percent.

Companies that provide phone and Internet connections are investing in media to find new revenue sources and ensure they don't get relegated to being just "dumb pipes." Verizon bought AOL last year and has now proposed a deal for Yahoo to build a digital-ad business. Comcast bought NBCUniversal in 2011.

Time Warner has moved to counter the threat that sliding cable subscriptions poses to its business. Among other things, it released a streaming version of HBO for cord-cutters and, alongside an investment in Internet TV provider Hulu, added its networks to Hulu's live-TV service that's expected next year.

After AT&T's attempt to buy wireless competitor T-Mobile was scrapped in 2011 after drawing opposition from regulators, the company doubled down on television by purchasing satellite-TV company DirecTV for $48.5 billion. AT&T is expected to offer a streaming TV package, DirecTV Now, by the end of the year.

AT&T Chief Executive Officer Randall Stephenson, who will run the combined company, said the deal will allow AT&T to offer unique services, particularly on mobile, though he didn't offer details.

Jeff Bewkes, the Time Warner CEO, who will stay with the company for an undefined transition period, added that more money will make it easier to produce additional programming and films.

Both men stressed that it will be easier to "innovate" when the companies are joined and don't have to negotiate usage rights at arm's length.

Buying Time Warner may be "a good defensive move" against Comcast as the cable giant continues stretching into new businesses, New Street Research analyst Jonathan Chaplin said in a Friday note.

Several analysts say the AT&T deal will likely face opposition from Washington.

John Bergmayer of the public-interest group Public Knowledge, which often criticizes media consolidation, warned of harm to consumers.

For example, he said, AT&T might refuse to carry channels that could compete with Time Warner's networks. Or on its phones, AT&T could let wireless customers watch TV and movies from Time Warner without using their data, in turn disfavoring video from other providers, he said.

If the deal is approved, regulatory conditions could limit AT&T's ability to favor Time Warner video or give AT&T customers better deals, rendering the deal nonsensical, analysts said.

Analyst Craig Moffett of research firm MoffettNathanson, referring to the strategies warned of by Bergmayer, said it's not hard to imagine what the companies can plan on paper.

"But as a practical matter, those kinds of strategies are expressly prohibited by the [Federal Communications Commission] and antitrust law," Moffett said.

Then there is the $85 billion that AT&T is handing over to Time Warner, almost 40 percent more than investors thought the company was worth a week ago.

"Count me as a skeptic that there is real value to be created," Moffett said.

A Section on 10/23/2016

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