On Monday, AT&T announced a $43 billion deal to merge its content unit, WarnerMedia with rival Discovery. The merger, still pending regulators’ approval, signals a change in AT&T’s years-long strategy of combining its communications networks with content production and distribution.
Aija Leiponen, professor at the SC Johnson College of Business and an expert in telecom industries, says that AT&T’s reversal validates what observers have been witnessing in recent years: that telecom ownership of content business is not a value added. Leoponen says:
“This proposed deal to join AT&T’s and Discovery’s media and entertainment businesses is more validation that there are limited or no synergies between wireless networks and media.
“In the past few years, telecom network operators have been acquiring media assets based on an argument that by owning the content, they can better ‘innovate’ new types of media services for 5G and other evolving communication networks. However, this was doubtful to begin with, as there was nothing specific in the acquisition plans that suggested co-ownership would solve some fundamental contracting problems between telecom network and media companies. Now it is becoming clear that whatever innovation has been pursued, customers haven’t much appreciated it – or there hasn’t been any meaningful innovation.
“In my view, the telecom and media companies can easily make contractual arrangements to deliver content through wireless networks without one side having to own the other. Telecom ownership of content business adds nothing to the value of the content business, and quite possibly detracts from it through poor strategic management.”