The shape of things to come in NZ? AT&T buying Time Warner

AT&T has reached a deal to buy Time Warner for more than $US80 billion, the Wall Street Journal says (the two companies have yet to make a formal announcement.

The Commerce Commission — currently considering the Vodafone-Sky TV merger ahead of a November 11 ruling — will be keeping a close eye on events.

The deal will face intense regulatory scrutiny, the Journal says. But if it goes ahead, it will create a $US300 billion that both creates content (Time Warner's stable includes the Warner Bros film and TV studio, CNN and HBO, among many other media assets) and distributes it (AT&T is the largest telco in the US).

The deal mirrors another US mega-merger aimed at vertical integration: when Comcast bought NBC Universal — a deal that worked out well for investors.

And, of course, it mirrors the proposed merger of Vodafone and Sky TV here (which technically speaking will see Vodafone backing into Sky then taking a 51% stake, with Vodafone NZ boss Russell Stanners running the combined operation).

The deals are not directly comparable. Where Time Warner owns a lot of cable in the ground, Sky leases bandwidth on satellites — which in a few years will be largely redundant as most content is delivered over UFB fibre or fast wireless internet. And while Sky largely buys-in content (beyond sports), Time Warner is a content powerhouse.

But there's the same broad theme: a media player facing challenges from new technology is reaching out to a big player in the telco industry — which of course faces its own challenges in the age internet-calling and internet-everything. Is banding together the only hope for growth, or does it give them unacceptable market power? I would argue no, given the proliferating ways that people can access content, and content makers' growing range of options for reaching consumers directly.

My take: it's yet another reason for Spark to seriously consider a close strategic partnership with TVNZ. Or, if the Crown is willing to flick it off, buying it.

Not helping my argument, AT&T investors seem less convinced than Time Warner's. The telco's shares fell  3% on Friday as rumours of the deal hit the media, shaving its value to $US226 billion. Time Warner's were up nearly 8% (making its market cap to $US73 billion).

And cross-species mergers don't always work. Time Warner's own dotcom-era hook-up with AOL (now unwound) is a textbook case of the synergies failing to eventuate.