The $85 billion AT&T deal for Time Warner won’t win regulatory approval. We will continue our current course even if it does. Will a line of major media consolidation dominoes — involving titans like Disney, Fox and Comcast — begin to fall? Not likely.
Such was the chilly reaction that senior entertainment executives had on Monday regarding AT&T’s purchase of Time Warner — even as many analysts speculated in the opposite direction, contending that the deal may force a vast reshaping of the media business as the big seek to compete by getting even bigger.
“We think the likelihood of a Fox bid for Sky now rises,” said Tim Nollen, an analyst at Macquarie Capital, referring to the pan-European satellite television and internet company. Rich Greenfield, an analyst at BTIG, pondered, “Can Comcast really resist buying T-Mobile?” Michael Morris, a Guggenheim Partners analyst, contended that Disney “should be strongly considering acquiring” Netflix.
The upshot: There was little agreement on Monday about what the aftershocks of AT&T’s weekend acquisition of Time Warner, home to Harry Potter and “Game of Thrones,” might look like.
“We don’t yet know enough,” Michael Nathanson, one of Wall Street’s more circumspect media analysts, wrote in a research note, putting the odds of AT&T winning regulatory approval at 50-50 — essentially a coin flip.
Maneuvering, however, was in full force.
Some senior media executives, speaking on the condition of anonymity to describe internal discussions, said they were assessing what concessions they might be able to extract from AT&T in return for supporting its acquisition. At the same time, Hollywood’s two biggest remaining content conglomerates, the Walt Disney Company and 21st Century Fox, indicated that they would fight the deal in Washington.
A Disney spokeswoman, Zenia Mucha, reiterated a statement the company issued over the weekend, saying, “A transaction of this magnitude obviously warrants very close regulatory scrutiny.”
A Fox spokeswoman, Julie Henderson, released a similar statement on Monday: “A deal of this size and scope, and the impact it will have on consumers, should receive the highest level of regulatory scrutiny.”
Here is a look at where the AT&T deal leaves other prominent media companies and what some analysts think they might consider in response:
Disney
The Walt Disney Company, with a market capitalization of $150 billion, is too big to be bought by anyone other than a Google or an Apple. And Disney, which has a singular corporate culture in Hollywood, has made it clear that it sees itself as the predator and not the prey when it comes to technology related deal making.
Disney has repeatedly dismissed speculation that it could buy Netflix — and it did so again on Monday — but the company has been looking for ways to supercharge efforts to take brands like Pixar, Marvel and ESPN directly to consumers via streaming. It recently weighed a bid for Twitter. Disney spent $1 billion in August to purchase 33 percent of BamTech, Major League Baseball’s fast-growing streaming division.
“One of the key capabilities that Disney lacks as of today is the ability to build a scaled, direct-to-consumer business for its television and studio properties with the associated back end technology expertise,” Kannan Venkateshwar, an analyst at Barclays, wrote in a research note on Monday.
Comcast
The country’s largest cable and broadband operator, Comcast also owns the NBC broadcast network, a bundle of cable television networks including Bravo, USA and MSNBC, film and TV studios and theme parks. What more could Comcast need?
On Monday, analysts were quick to suggest that Comcast strike a deal for a wireless carrier to stay competitive with AT&T, which already counts more than 100 million subscribers across its wireless, broadband and DirecTV offerings. They pointed to T-Mobile, Sprint and Dish as attractive targets. (The same logic applied to Charter Communications, the country’s second-largest cable operator, which closed its deal for Time Warner Cable in May.)
Acquiring a wireless company would be particularly pressing, the analysts said, if AT&T introduced a new streaming service bundled with wireless data.
Yet, Comcast recently announced plans to expand its wireless offerings. And the company is still licking its wounds after its deal for Time Warner Cable collapsed under regulatory scrutiny last year. “Comcast’s rejection in its bid for Time Warner Cable, however, has clearly left the company scarred, and gun shy about returning to Washington,” MoffettNathanson Research said in a note on Monday.
21st Century Fox
The Murdochs have ownership control, and nobody thinks they would be sellers — especially since Rupert Murdoch’s sons, James and Lachlan, were given the chance to run the family media company only last year.
But the family may have already shown its hand, several analysts and bankers said. Over the long term, Fox thinks it needs to get bigger. That thinking comes from Fox’s unsuccessful $80 billion takeover bid for Time Warner in 2014. If Fox offered that much before, could it make an even bigger offer for Time Warner now? (Ms. Henderson, the Fox spokeswoman, shot down that possibility on Monday.)
On the company’s last conference call, James Murdoch, Fox’s chief executive, answered a question about potential acquisitions by saying, “We’re quite happy with where we are today.” He added that the company would be “very careful with our capital.” Fox’s recent strategy has involved eschewing trendy takeover targets like Vice Media in favor of reinvesting in channels like National Geographic.
The question is whether the AT&T deal changes that stance. Fox could swing into buying mode, tucking in MSG Networks, with holdings in sports television, or even Metro-Goldwyn-Mayer, which owns rights to the James Bond franchise.
CBS and Viacom
Before AT&T and Time Warner, the media industry was abuzz over the marriage of CBS and Viacom. In September, the ailing 93-year-old mogul Sumner M. Redstone and his daughter, Shari Redstone, called for CBS and Viacom to explore an all-stock deal that would leave the family in control of the combined company. Special board committees at both companies are evaluating the proposed reunification; the companies split in 2006.
On Monday, some analysts and media executives said that they expected the AT&T-Time Warner deal to accelerate those considerations. The AT&T-Time Warner deal underscores the old industry adage that content is king, they said. The agreement also highlighted the need for entertainment companies to band together so that they would have more heft in negotiations with the larger and larger cable, satellite and wireless companies.
But while such a deal may be crucial for the survival of Viacom, which has struggled mightily, the same may not be true for CBS, which is in more of a position of strength. Any CBS-Viacom deal requires winning over Leslie Moonves, the chief executive of CBS, who has expressed doubt over the corporate marriage. The latest development may well give Mr. Moonves more bargaining power.
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