Just recently, AT&T announced plans to acquire Time Warner, a purchase that would add a host of valuable content assets (like HBO, CNN, and TNT) to its growing portfolio (which already includes DirecTV). The seemingly obvious reason for this new acquisition is diversification. The rise of Netflix, HBO, and Amazon Prime Video have shown us that content (especially original content) attracts consumers. And what do network operators like AT&T need? More subscribers. With the likes of HBO under its wings, AT&T could create unique content experiences, coupled with mobile subscription packages, to attract new subscribers.
But what is AT&T’s true end goal? Is the Time Warner acquisition really just a strategy to get more subscribers? To provide a unique service that might propel it past Verizon’s market share? To understand a possible answer to AT&T’s underlying goal, we need to first look at what Verizon has put together.
Verizon has spent considerably over the past several years acquiring not only content providers (AOL and Yahoo), but technologies as well (UpLynk, Edgecast). They have also established unique content partnerships (i.e., NFL Redzone). And, they have even carved out a business services unit, Verizon Digital Media Services, with the capabilities to help organizations deliver online video content. In short, Verizon touches all constituents in the value chain—from consumer to enterprise—with an ecosystem of content to keep eyeballs focused and attentive (and one that generates incremental revenue through ad impressions). Although some of Verizon’s acquisition and organization strategy revolved around subscriber growth, it seems that they are trying to serve both ends of the value chain (content consumers and content owners) which provides them a unique place in the market.
With the recent announcement, AT&T seems to be pointing its guns directly at Verizon. If the new acquisition happens, the combination of DirecTV and Time Warner give AT&T the content ecosystem to rival their largest competitor, clearly providing opportunities to steal subscribers through unique subscription offerings. Consider, for example, consumers who subscribe to AT&T and DirecTV. They can watch live, linear DirecTV on their smartphones without any cost against their mobile data plan. That’s a unique content-based offering that may attract DirecTV subscribers to switch from other providers. And with HBO, TNT, and CNN in the portfolio, AT&T will be able to create other unique content offerings that may woo consumers. What’s more, the approach that AT&T takes in offering Time Warner and DirecTV content to its subscribers could serve as a model for other content providers, in essence, turning AT&T’s budding content play into a platform for the delivery of online video. Perhaps AT&T partners with a technology company like Major League Baseball Advanced Media (MLBAM) to “productize” their content delivery? Or maybe they acquire a smaller player like Neulion that offers an end-to-end OTT platform? But no other content owners are likely to come rushing to this ecosystem until AT&T provides what Verizon provides. That means AT&T needs a CDN.
Those in the media industry know that AT&T has tried to build their own CDN before, without much luck. So they partnered with Akamai. And although that has provided them a nice book-of-business, it’s still a vendor relationship. What AT&T really needs, in order to compete with VDMS’s value proposition, is to own the CDN. But rather than build it, this time they should just acquire it. The options? Although there are several stand-alone CDNs that might make a good fit (i.e., Limelight Networks), there’s really only one with the capacity that AT&T needs to ensure it can deliver its newly acquired content (and that of other companies who might come to use AT&T Digital Media Services) to its millions of subscribers—Akamai. By acquiring the market leader, AT&T could bake edge caches deeper into its network (with greater density as well) while controlling the flow of content.
Is AT&T going to become the next major platform player in the media space? Quite possibly. AT&T is definitely putting together a lot of the pieces that scream ecosystem, delivery platform, and business services, putting it on a direct collision course with its largest competitor, Verizon. But there are others in the wings as well. Amazon isn’t sitting idly by. It has already developed a content ecosystem, an OTT platform, and a CDN. It just needs a network operator. Perhaps the e-commerce and budding video giant is eyeing AT&T? Or maybe even T-Mobile?
The media landscape is definitely changing as network operators and content owners merge. We are seeing the birth of value-chain providers, companies like Verizon, that control access, eyeballs, and the technologies to deliver it all to any device, anywhere. If nothing else, the next 12 to 18 months should be an interesting time as more acquisitions happen and network operators, like AT&T, seek to establish themselves in adjacent markets.
Shots have been fired. Who moves next is anyone’s guess.