Phone, meet content: AT&T bets $85.4 billion on Time Warner

What this year's biggest acquisition means for both companies, consumer choice and privacy, and a new era of content

The AT&T-Time Warner merger -- an $85.4 billion gamble? (Image: Fortune)

Once you grapple with the jaw-dropping price tag of $85.4 billion (Dh313.7 billion) for the AT&T and Time Warner deal, the big question that pops up is: why? Why would a telecoms operator want to buy an entertainment company?

Well, the answer is simple: survival. What we do with our phones has changed significantly over the past decade. For many, using a phone for old-school phone calls is now way down on the priority list. Instead, the device is used more as a powerful entertainment hub. As CNN Money points out, “Even in the age of Snapchat, you spend a lot more time watching media than you spend making it. You’re increasingly watching that media right on your smartphone and other mobile devices. These changes have meant the introduction of new ways to pay for entertainment; new ways to interact with sports; new ways to distribute news.”

For AT&T, that’s where Time Warner comes in. From a service that merely connects smartphones to the internet, the company can morph into a media behemoth providing content that can be leveraged and monetised. And that roster of content sources is highly impressive: CNN, Cartoon Network, HBO, TNT, TBS and Warner Brothers. Even Game of Thrones — perhaps in future editions, you might see the character communicating via AT&T devices instead of ravens.

AT&T also has to worry about competition. Arch-rival Verizon is well on the road to mediahood, having snapped up AOL last year, and announcing its interest in Yahoo this year — though that deal has run into controversy after news of widespread hacks at Yahoo! Apparently, Verizon is now asking for a $1 billion discount on the $4.8 billion it agreed to pay for the fallen internet giant.

Meanwhile, for Time Warner, it might be a bit of a deja vu moment. The company hold the dubious record of being involved in the “worst merger of all time” when, in 2000, it joined forces with the then Internet poster boy AOL. That deal was worth a staggering $165 billion and, interestingly, the reasoning behind it was similar — to leverage Time Warner’s content using AOL’s vast reach on this new-fangled platform called the internet. That plan, however, failed miserably and the two companies parted ways in 2009.

So will history repeat itself with the AT&T-Time Warner deal? For starters, not everyone is happy about it and the deal may not even make it past regulatory hurdles — US presidential candidate Donald Trump has said deals such as these “destroy democracy” by concentrating too much power in the hands of too few. Trump has vowed to nix the deal if he gets elected. And he’s not the only one opposed to this merger — various analysts have expressed concerns on what such consolidations mean for user privacy and whether it will even “buy happiness” for AT&T.

As Jeffrey Chester, Executive Director at the Centre for Digital Democracy, told USA Today, “A new stranglehold is being placed on our communications landscape, as already dominant cable and telephone monopolies devour former partners or competitors.” He adds that, using the growing capability of smartphones to follow and geo-target us everywhere we go, “these new broadband ISP/mobile/TV giants are extending their powerful digital tentacles further into our lives”.

Or, as the Washington Post sums it up, “Telecom gatekeepers such as AT&T could steer customers to their own offerings, muscling out independent artists and limiting choice. Or they could exclude non-customers, forcing curious audiences to subscribe or go without.”