Sunday, October 23, 2016

AT&T’s Time Warner Deal Looks Like Bad News For Verizon

By Brian Fung
The Washington Post
October 24, 2016

AT&T's $85.4 billion megadeal to acquire Time Warner is an unprecedented bid to diversify the telecom giant as network operators nationwide scramble to marry their communications pipes with exclusive content. For many of these firms, it's no longer enough to be the conduit to TV shows, films and other creative media. A growing number of them want to be making money from the production and cross-promotion of content, too.

Against this backdrop is Verizon, AT&T's biggest rival in the wireless industry, which has made its own moves toward gaining access to content. But some analysts say the outlook for Verizon is beginning to look gloomier as AT&T barreled to a deal with Time Warner on Saturday.

“You've got the big-league players, and you've got the second-string players,” said Jeff Kagan, an independent telecom analyst. “Verizon — the moves they've made, they make it look more like a second-string player.”

A Verizon spokesman didn't respond to a request for comment.

Verizon has made headlines recently with its acquisitions of AOL and Yahoo, both icons of the early Internet that later fell on hard times.

The underlying logic of those deals is rooted in the same dynamic driving the rest of the industry. Verizon primarily purchased AOL for its substantial ad-targeting technology, which will allow Verizon to turn online video viewers into revenue more easily. Yahoo, whose site remains one of the Internet's top destinations after Google and Facebook according to the market research firm ComScore, is notable for the millions of viewers it attracts each month.

But what Verizon gets out of AOL and Yahoo may pale in contrast to what AT&T is now getting with Time Warner, a media titan that includes a major movie studio; a global, 24/7 cable news network; and rights to some of the most recognizable names in pop culture, such as Batman, Superman and Harry Potter.

“It’s hard to compare what Verizon has bought . . . with the quality of what Time Warner offers,” Walt Piecyk, a telecom analyst at BTIG, wrote in a research note Saturday. “In fact, Verizon bought the AOL asset that Time Warner didn’t want. There is no indication Verizon’s strategy will change and frankly few, if any, alternatives that remain.”

Yahoo's disclosure in September of a historic data breach affecting at least 500 million user accounts has cast a big cloud over Verizon's purchase. That news was further compounded when the public learned that top Yahoo executives had secretly worked with intelligence officials to scan customer emails — without the knowledge of its chief information security officer, who quit the company in protest when he discovered the arrangement.

Now, Verizon may face pressure to match AT&T's moves. But it is unclear how.


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