After a decisive ruling in favor of AT&T’s merger with Time Warner, consumers might soon see the telecom giant roll out products that combine its pay-TV, broadband and wireless business with Time Warner’s extensive lineup of content.
Expect new streaming services and targeted ads similar to the ones served up by Google and Facebook. Some of those products could debut in the next few weeks.
One of the new streaming services will be AT&T’s cheapest streaming service yet – a $15 per month option that will not include sports programming, AT&T chief executive Randall Stephenson said in a speech last month. He said AT&T will offer streaming services with various lineups and price points, including a premium streaming service for about $90 per month.
It launched its first streaming service, DirecTV Now, in late 2016. It has grown to about 1.5 million subscribers and recently got cloud DVR. Its price starts at $35 per month.
AT&T plans to close the deal with the New York-based entertainment company on or before June 20, AT&T general counsel David McAtee said in a Tuesday statement. It will become owner of Time Warner’s well-recognized TV and movie brands, including HBO, CNN and Warner Bros.
The completed merger will allow AT&T to “begin to give consumers video entertainment that is more affordable, mobile and innovative,” McAtee said in the statement.
The Dallas-based telecom company has been in a holding pattern for months, as it awaited a federal judge’s decision on the merger. AT&T announced in October 2016 that it had reached an agreement with Time Warner for the acquisition, but it hit a major roadblock in November 2017 when the Justice Department sued to stop it. The deal is valued at $108.7 billion, including debt.
In a Washington courtroom Tuesday, judge Richard Leon rejected the government’s arguments that the combined companies could strong-arm competitors and drive up prices for consumers. He cautioned the Justice Department against seeking a stay, which could delay AT&T and Time Warner’s plans to close the deal.
The Justice Department has not yet said whether it will appeal the ruling.
In the courtroom and in statements to shareholders, AT&T executives described the Time Warner merger as a way to leap into the future and compete with popular content. The company also said it wants to compete with Facebook and Google for advertising dollars.
AT&T is betting on targeted advertising to drive up profits as it offers streaming services at a lower price. To do that, it plans to combine its consumer data with Time Warner’s advertising inventory, Stephenson said when speaking in late May at a conference of tech website Recode. On Turner networks, for example, there is a total of 16 minutes of advertising for sale in an hour of programming. The network controls about 14 minutes while a distributor like Comcast has only 2 minutes.
AT&T hired Brian Lesser to build and lead its ad and analytics business in 2017. He is the former chief executive of GroupM North America, a large New York-based advertising agency that’s owned by WPP.
Stephenson said at a J.P. Morgan conference in May that Lesser has hired a team of advertising experts and has been “sitting in idle, ready to go after we close the Time Warner transaction.”
By using consumer data to customize ads for each viewer, Stephenson said the company could make three to five times more money than through traditional advertising.
That means after you go to a store’s website, you may see its ad pop up when you watch TV on AT&T’s streaming service. AT&T will also use insights it has about a customer’s age, gender or geography. It could serve up an ad about a nearby car dealership, for example.
The “Big Brother” factor may creep out some consumers, but many are “willing to trade away a lot to get stuff, whether programming or something else,” said Paul Sweeney, a media analyst for Bloomberg.
If AT&T can charge advertisers more, it could consider another change: Fewer advertisements, Stephenson said. In his remarks at the Recode conference, he pointed to how Time Warner’s TNT has decreased the total number of advertising minutes during shows. CNN has also trimmed back advertising time on some of its news shows.
“If you can begin to drive yields up, can you take advertising loads down? And can you actually begin to change the viewer experience with some of this content? We actually believe you can,” he said.
After the merger, Sweeney said consumers will have more choices, but won’t see lower prices. “I don’t think we’ll see meaningful, if any, price declines,” he said.
He said AT&T’s promotions will probably work the same way: It will offer lower prices to steal away customers from the competition. Cheaper streaming services, such as the $15 per month option, will be aimed at consumers that AT&T does not reach with its current offerings, he said, not the ones with a pricey cable or satellite package.
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