A view from Gideon Spanier

Scaling up is one way to keep the tech giants at bay

If AT&T is successful in buying Time Warner, the company will have more leverage against the tech giants.

Once upon a time, I worked for CNN in London when its swashbuckling American founder, Ted Turner, was still in charge. He was in the throes of selling Turner Broadcasting to Time Warner and came to the UK to speak to his staff, using his speech to mock the management consultants who had criticised him for expanding his TV network without a clear plan. "The plan was expand!" he declared with a flourish.

Turner Broadcasting has gone on to be a happy part of Time Warner for two decades, with a shared commitment to producing quality content, funded by a combination of subscription and advertising. Rather less successful, a few years later, was the sale of Time Warner to internet provider AOL: a $165bn marriage that was ahead of its time and ended in divorce.

Time Warner learned its lesson and adapted Turner’s maxim about expansion. It successfully invested in TV and film assets such as HBO and franchises including Harry Potter and Game of Thrones, but also slimmed down by spinning off non-core assets, including TV and broadband distribution business Time Warner Cable, magazine arm Time Inc and AOL.

Roll on to 2016 and Time Warner is part of a new telecoms expansion plan. AT&T has agreed to buy the company for $85bn to create a $300bn content and distribution powerhouse for the mobile age.

The US deal has global implications. AT&T is betting that owning exclusive, original content will help it to win more subscribers to its telecoms services, as its counterpart Comcast has tried to do with NBCUniversal.

Scaling up means AT&T has more leverage against the tech giants and enables it to sell more services and content direct to the consumer. And AT&T and Time Warner are promising innovation in advertising and data, with both personalised, addressable ads and cross-screen targeting on multiple devices. 

The fear is that this concentration of power – owning the pipes and the content flowing through them – could be harmful for competition. If AT&T places Time Warner’s channels in its own walled garden, it could make it more expensive not only for consumers but for advertisers that want to reach them. Mega-mergers also have a mixed record, as Time Warner knows.

But the direction of travel for legacy media and telecoms companies must be towards greater consolidation at a time when Google, Facebook, Amazon and Netflix cast a shadow over all else.

So Turner’s advice still holds true. The plan is expand, or get squashed. Just remember: bigger does not always mean better.

gideon.spanier@haymarket.com 
@gideonspanier