Leo Hindery Jr., managing partner of InterMedia Partners and a widely-respected veteran of the cable television industry (TCI, Comcast), has joined the chorus of skeptics voicing doubt that AT&T will be able to close on its proposed $85.4bn merger with Time Warner. Since AT&T and Time Warner announced the proposed merger on Oct. 22, the stocks of both companies have come under pressure.
In a video interview for Investopedia, Hindery is doubtful that regulators would permit AT&T to funnel Time Warner’s vast content through its extensive distribution network, which includes Direct TV satellite service. While such vertical integration is the biggest motivation behind the deal, Hindery points out that regulators forced Comcast to segregate its distribution pipelines from NBC Universal when it acquired the company. “They’re not vertically integrated,” he says of the 2011 merger. “They’re vertically owned.”
Leo Hindery on ATT, Time Warner
Even if AT&T and Time Warner can attain a degree of vertical integration, industry insiders see other challenges. Most significant is the increasing ability of consumers to block advertising, with approximately 20% of mobile internet users deploying ad blocking software. This will likely undermine the combined entity's ability to improve advertising rates from vertical integration. Meanwhile, significant competitors (i.e. Alphabet, Amazon, Apple, Facebook) are pressing ahead with initiatives promising to disrupt further both telecommunications and media sectors.
In the two-part interview, Hindery also notes that the proposed merger comes at a time when the basic economics of the cable industry are under pressure. Consumers are increasingly finding alternative means to view media content at lower cost, and the trend is likely to accelerate with the transition to 5G mobile communications standards. While individually targeted programming and advertising may serve to enhance value going forward, the days of the standard bundle offering are beyond numbered.
David Garrity is Principal of GVA Research, a New York-based consulting firm. He has more than 25 years of experience in the financial services industry.