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Does The AT&T-Time Warner Merger Make Sense?


AT&T wants to buy Time Warner for $85 billion. That would tie together a huge cable, satellite and internet service provider with HBO, CNN and Warner Brothers studio. Critics across the political spectrum have questioned whether the deal would hinder competition. NPR media correspondent David Folkenflik has another question. Does the deal make sense?

DAVID FOLKENFLIK, BYLINE: Why are AT&T and Time Warner taking the plunge? Jon Klein thinks he knows the answer. He was president of CNN U.S. for six years, and he points to the financial headwinds facing both AT&T and Time Warner.

JON KLEIN: So it's a marriage driven by fear of the unknown and the hope that bigness can overcome ambiguity.

FOLKENFLIK: The chief executives of the two giant companies involved describe their logic more like this.

RANDALL STEPHENSON: So we have unquestionably the broadest distribution platform for video in the United States and even in Latin America.

FOLKENFLIK: That's Randall Stephenson. He's the CEO of AT&T.

STEPHENSON: We have come to believe strongly that premium content always wins. And it's won in the living room where the TV set is, but that has also moved out to the mobile device.

FOLKENFLIK: Premium content such as HBO's hits and college basketball playoffs but also shorter video bursts.

STEPHENSON: If you could put two companies together, one that has probably the best premium content in the industry and one that has the best premium content delivery system in the industry - put these two together - you can begin to innovate and iterate much faster.

FOLKENFLIK: Time Warner CEO Jeff Bewkes says consumers could get custom-designed packages of video propelled by AT&T Next generation technology. Stephenson and Bewkes gave a joint interview to NPR earlier this week as part of their effort to win over the public, federal regulators and skeptical investors.

Craig Moffett is founder of the investment advising firm MoffettNathanson. He's considered one of Wall Street's top analysts of the telecommunications industry.


CRAIG MOFFETT: When I poke at this, I can't really get anything tangible that says here's what we will actually do differently because we own these assets. Here's what these assets will allow me to do to gain strategic advantage.

FOLKENFLIK: Moffett made these remarks on the podcast "Full Disclosure" with Roben Farzad.


MOFFETT: The challenge, again, for AT&T is to try to make this something more than just a collection of assets under one umbrella because that's diversification, not strategy.

FOLKENFLIK: AT&T's Stephenson told me he wants Time Warner to operate as it did under Bewkes with creative and journalistic independence from AT&T. While admirable, that also sounds more like diversification than strategy.

But let's say the two companies truly do try to combine. Aija Leiponen says it's tough to make such huge mergers work. She's a Cornell professor of applied economics who specializes in telecommunications.

AIJA LEIPONEN: There's a lot of sort of wishful thinking that goes into these kinds of deals. But in practice, they're really difficult to execute. And in most cases they're - the synergies that are assumed to be there - either they don't exist, or they don't materialize.

FOLKENFLIK: And then there's this. In order to attract satellite and cable TV subscribers, AT&T will still have to offer channels from other media companies. Meanwhile, HBO, CNN and other Time Warner channels will have to be available on AT&T's competitors, or profits will tank.

So while AT&T may have some marginal exclusive content for mobile subscribers, it could do so through partnership rather than purchase. So where's the big benefit to getting bigger? At a conference held by Business Insider in 2012, Bewkes explained why he had decided to make Time Warner smaller.


JEFF BEWKES: You know, there's no advantage, in our minds, owning Warner, HBO, Turner and Time Inc. Publishing, to owning a cable company. We don't - it doesn't help us. We don't help them. So let's separate that and build scale in each of those businesses.

FOLKENFLIK: Eventually Time Warner sold off its big cable TV system and then sold off Time Inc. Publishing and another big assets such as AOL, too. A short time later, Bewkes is advocating the biggest corporate merger of the year. David Folkenflik, NPR News, New York. Transcript provided by NPR, Copyright NPR.