Time Warner will be fine even if the government blocks the bid from AT&T to buy the company.
That’s the word from John Martin, the free-wheeling chief executive of Time Warner subsidiary, Turner Inc., who was speaking at the Code Media conference in Huntington Beach.
For the record, Martin says that the government’s position on the acquisition offer is “stupid” and that it will likely lose its case. “It is a massive misallocation of resources and capital to fight this thing,” Martin said. “They are going to lose.”
Martin argued that while the value of AT&T had remained flat after news of the acquisition broke, Amazon and Google added roughly the equivalent of the telecommunications company’s market cap over the same period. Meanwhile Facebook’s valuation grew to the size of two Time Warners, Martin said.
“So if you’re the government and you’re worried about fixing the competitive landscape, what are you worried about?”
His point was that the competitive landscape would not be harmed by a merger of the two companies.
“In the history of the country, what vertical merger has tilted the landscape of the competitive environment? Let me give you the answer: Zero.”
Still, should for some reason the government make its case, Time Warner could survive… for a time. The company is coming off of its best year across most of its media properties, according to Martin.
“Time Warner is a pretty, stable, big successful company. So I mean, HBO is on fire right now. Warner Brothers had the most successful year in its history in 2017. We did too. Whatever happens happens,” said Martin. “The future is really bright.”
That said, consolidation is the name of the game, and should Time Warner not be bought by AT&T it would need to find another acquirer eventually.
Martin and his fellow panelist, A+E Networks chairman and chief executive Nancy Dubuc noted that in this new media landscape size does matter. They both expected that Viacom would have to reintegrate with CBS — and that observation matters for Martin’s own assessment of Time Warner’s stability.
AT&T has placed a few full-page ads explaining that it is pro-net neutrality, it has always been pro-net neutrality, and that Congress once and for all should enshrine net neutrality principles in law.
No, it’s not opposite day. This is a clever play by AT&T aimed not at protecting users, but kneecapping edge providers like Facebook and Google. It’s like the fox calling for a henhouse bill of rights.
First, the idea that AT&T is in favor of net neutrality — the net neutrality we all had and enjoyed — is laughable.
The company fought tooth and nail against the 2015 rules while they were being prepared, fought them while they were in force, and fought for their rollback and replacement with the new, weaker ones. It fought against municipal broadband, pushed the limits of what constitutes a violation of net neutrality, and of course the blockage of Facetime on its network is one of the textbook cases of why we need it in the first place.
Gigi Sohn, once former FCC Chairman Tom Wheeler’s counselor, isn’t having it. “They’ve done everything in their power to undermine consumer protections, competition, municipal broadband… it’s hypocrisy to the tenth degree,” she told me.
But let’s just hear what AT&T has to say.
“Courts have overturned regulatory decisions. Regulators have reversed their predecessors… it’s understandably confusing and a bit concerning when you hear the rules have recently changed, yet again,” writes chairman and CEO Randall Stephenson, who fails to mention that his company has been deeply involved in those changes, spending lavishly on lawyers, lobbyists, and the elections of officials friendly to the company.
“AT&T is committed to an open internet. We don’t block websites. We don’t censor online content. And we don’t throttle, discriminate, or degrade network performance based on content,” he continues. “Period.”
In fact, an FCC report issued early last year (just before inauguration day) concluded that “AT&T offers Sponsored Data to third-party content providers at terms and conditions that are effectively less favorable than those it offers to its affiliate, DirecTV.” And of course there’s the Facetime thing. And the fact that paid prioritization isn’t mentioned by AT&T as a bad thing (it’s not “based on content” if it’s based on whose content it is).
“But the commitment of one company is not enough,” Stephenson writes, as if the company’s commitment was not only real, but the only one extant. “Congressional action is needed to establish an ‘Internet Bill of Rights’ that applies to all internet companies and guarantees neutrality, transparency, openness, non-discrimination and privacy protection for all internet users.”
The privacy protections AT&T lobbied to undermine? Never mind. Leaving aside that AT&T is the last company on earth we should listen to when it comes to such a theoretical Congressional action, this paragraph where the real sleight of hand happens. Three little words:
“All internet companies.”
Tarring the fortunate ones
These broadband providers aren’t dumb. They’ve been playing the game for a long time now, and it’s pretty clear that regulators are coming for them sooner or later — the last two years were just a preview, and the recent victory in the FCC possibly a short-lived one.
They’ve been resigned to that fate for a long time. But what really gets their goat is the runaway success of edge providers — that is to say, internet companies like Facebook, Amazon, Google, Microsoft, and so on. The idea that these major companies, which handle all this personal data and are so critical to users of the web, have escaped serious regulation while ISPs are closely watched, this rankles the latter group to their core.
Edge providers are a much bigger actual threat to an open Internet than broadband providers, especially when it comes to discrimination on the basis of viewpoint. They might cloak their advocacy in the public interest, but the real interest of these Internet giants is in using the regulatory process to cement their dominance in the Internet economy.
It shouldn’t be surprising that Pai adopted this argument, so long in use by the broadband companies (Sohn called AT&T “Ajit Pai’s chief strategists”). But as I and others have pointed out again and again, the whole thing is colossal a red herring.
What AT&T is trying to do here is put all internet companies in the same bag, bringing down regulations on a hated rival (edge providers) just after escaping the regulations placed on its own industry. And the idea of shared net neutrality rules is the bait.
“This is absolutely nothing new,” Sohn told me. “For the last seven or eight years, [ISPs] have been saying, “Net neutrality? But what about these guys?'” But as powerful as Google and Amazon and Facebook are, they don’t provide access to the internet. They provide their services on the internet.”
The fundamental difference between these industries is plain for anyone to see. Do you regulate farms and grocery stores the same? Of course not. What about cars and gas stations? Don’t be ridiculous. Same for phone companies and the companies that use phones, and internet providers and companies that use the internet to provide things. These are overlapping, but very distinct, magisteria.
A Congressional solution may be required, but don’t forget that the people in Congress AT&T is working with are likely the same ones who gave the company a green light to collect personal information last year. The prospect of Congress rolling back the FCC’s recent decision doesn’t sound quite so sweet, I’m guessing, since Stephenson doesn’t mention it at all.
The sentiment of AT&T’s suggestion is hollow, and the logic is absent. AT&T hasn’t earned your trust, let alone the benefit of the doubt. Don’t take this palaver seriously.
Featured Image: Andrew Harrer/Bloomberg/Getty Images
The latest entry in Huawei’s on-going struggles to come to the U.S. proved to be one of the more unexpected and engaging CES storylines last week. But there are still plenty of layers of this onion left to peel back. This morning, Reuters is confirming speculation that AT&T’s last minute decision to pull out of a deal with the Chinese phone maker comes as U.S. lawmakers applied pressure on the carrier.
According to the outlet’s sources, AT&T’s hand was forced when members of Congress lobbied against its plan to offer Huawei handsets through its carrier subsidy program. Lawmakers are reportedly going even further, pushing the country’s second largest carrier to cut more ties with the company.
On the docket are a plan to hash out 5G network standards and a deal with Cricket, a prepaid wireless provider that was absorbed into AT&T back in 2013. The aforementioned lawmakers have also reportedly warned that ties to Huawei and state-owned telecom company China Mobile could jeopardize potential contracts with the government.
The report is certainly in line with a 2012 House Intelligence Committee report, which flagged both Huawei and ZTE as potential security risks, stating, “Private-sector entities in the United States are strongly encouraged to consider the long-term security risks associated with doing business with either ZTE or Huawei for equipment or service.”
On Friday, Texas Republican Michael Conaway introduced a bill seeking to prohibit the U.S. government from working with any carriers using either Huawei or ZTE handsets. That arrived a few days after Richard Yu seemingly went off script at a CES keynote to excoriate U.S. carriers for refusing to work with Huawei, stating, “it’s a big loss for consumers, because they don’t have the best choice for devices.”
Huawei clearly had big plans for a U.S. push this year, including a huge ad campaign featuring Wonder Woman actress, Gal Gadot. Without the support of a carrier, such an aggressive push will be something of a nonstarter in a country where most phone purchases are still made through service providers.
Huawei’s CES press conference isn’t until later today, but the company’s already having a rough time of it. According to reports from The Wall Street Journal, AT&T has backed out of a deal with the Chinese smartphone maker — the latest in a series of setbacks as the company attempts to gain a foothold in the U.S.
The U.S. has been something of a white whale for the handset maker, which currently ranks as the world’s No. 3 brand behind the more familiar Apple and Samsung. While the market has shifted somewhat in recent years, carrier deals still comprise the vast majority of smartphone purchases here in the States. Those deals, however, have remained elusive for the company.
But Huawei believed this would be the year it would turn all that around — and CES would be the show. The company reportedly expected it would be unveiling an AT&T partnership at the show today — something it anticipated would be a tentpole announcement.
“We will sell our flagship phone, our product, in the U.S. market through carriers next year,” CEO Richard Yu told the Associated Press back in December. “I think that we can bring value to the carriers and to consumers. Better product, better innovation, better user experience.”
But that dream has, at least temporarily, been dashed, forcing Huawei to soldier on in the States without a carrier. The company is likely to spend time focusing on its Mate 10 flagship at the show today, but how it plans to actually penetrate the market in any meaningful way is much more murky now.
As for what actually spurred Huawei to pull out of the deal isn’t clear, but a 2012 House Intelligence Committee report does go a ways toward explaining the company’s struggles here. Huawei was specifically called out over security concerns, along with fellow Chinese smartphone maker, ZTE.
“Private-sector entities in the United States are strongly encouraged to consider the long-term security risks associated with doing business with either ZTE or Huawei for equipment or services,” according to the report.
Whatever the case, it will make for a fascinating show when the company takes the stage later today.
This is a major win for AT&T, which officially won the FirstNet contract this past March. The contract stipulated that AT&T would manage the network for 25 years, and the company committed to spending $40 billion to manage and operate the network. In exchange, the company would receive 20 MHz of critical wireless spectrum from the FCC, as well as payments from the government totaling $6.5 billion for the initial network rollout.
The true win for AT&T though is in the actual spectrum itself, which is in the 700 Mhz band commonly used for LTE signals. While the FirstNet spectrum is prioritized for first responders, it can also be used for consumer wireless applications when an emergency is not taking place, which should improve cellular reception and bandwidth for AT&T customers, particularly in urban areas.
The bigger loss though is with the U.S. taxpayer. FirstNet has had something of a painful birth and maturation process. Originally created as part of the Middle Class Tax Relief and Job Creation Act of 2012, it was designed by Congress to create an exclusive network for first responders, who presumably couldn’t use consumer technology like smartphones to communicate with each other. That was following recommendations from the 9/11 Commission that encouraged Congress to allocate dedicated public safety spectrum.
The program has had a glacial implementation process ever since. As Steven Brill described in The Atlantic last year: “FirstNet is in such disarray that 15 years after the problem it is supposed to solve was identified, it is years from completion—and it may never get completed at all. According to the GAO, estimates of its cost range from $12 billion to $47 billion, even as advances in digital technology seem to have eliminated the need to spend any of it.”
At issue is whether the rapid improvement of consumer wireless technology — which is available today — far outweighs the performance of a hypothetical public safety network that remains a glimmer in the mind’s eye.
Most interoperability problems have been solved by modern technology, and so the question becomes what the buildout is really for anyway. Why did the government give exclusive access to a critical part of the spectrum that could have benefitted millions of consumers, while also provided expedited access for first responders?
For AT&T, the victory provides a new source of revenue from local police and fire departments, who will presumably come to rely on FirstNet for their emergency communications. It also gets a serious boost in its spectrum, along with free cash from taxpayers. But for all of us, it seems billions of dollars will be spent to create a specialist comm channel, when existing technologies are more than up to the task of providing these highly-reliable services.
1. There will be blood in the escalating battle amongst premium OTT video giants, as the market becomes over-saturated, early winners and losers are declared, and Netflix finds itself increasingly in everyone’s lines of sight — including Disney’s and Apple’s.
Originals continue to be the primary weapon used on the OTT video battlefront, extending digital media’s “New Golden Age” for creators. We already know that traditional pay TV providers like Comcast will enter the fray in 2018, as will Disney when it launches its own pair of “Netflix Killers.”
But, Apple almost certainly will also join the premium SVOD fray in 2018. It’s all-out war in the premium OTT video world, as cord-cutting accelerates and traditional cable and satellite providers shed more paying subs.
2. Most other new premium OTT video market entrants in this beyond-crowded premium OTT video space – including so-called niche-focused OTT video services — will be swallowed up or simply languish, squeezed out by market leaders and the sheer scale of Google and Facebook, with which they simply can’t compete for ad dollars.
Google and Facebook already own about two-thirds of that global digital advertising market. That means that most OTT video players simply cannot succeed on ad dollars alone — and other means of monetization will be beyond their reach because they fail to deliver a sufficiently compelling, differentiated and emotionally connected media experience. Winners will swallow up losers in an environment of accelerating M&A.
3. The Hollywood community will begin to increasingly understand the power of new cost-effective technology-driven ways to test and measure new characters, stories and engagement in order to more smartly and efficiently place their big expensive bets.
Innovative new services like comics-driven motion book company, Madefire; mobile-first horror-focused company Crypt TV; and mobile-focused text storytelling company Yarn point the way. Meanwhile, Netflix, Amazon and Facebook will continue to mine their deep data about all of our hopes and dreams to maximize “hits” and minimize “misses” as compared to traditionalists. And, they will increasingly do a good job at it, as they become more confident in their creative pursuits.
4. Spotify will go public at a lofty valuation, but those numbers and overall investor confidence will decline throughout the year, together with Pandora’s, as these two pure-play global streaming music leaders find it increasingly difficult to compete against “big box” behemoths Apple, Amazon and Google/YouTube.
Yes, Spotify and Pandora boast massive scale. Yet, scale alone does not financial success make. In fact, pure-play distribution success leads to higher and higher losses due to sobering industry economics these pure-plays can’t stomach, but the behemoths can due to their multi-pronged business models. These harsh realities mean that investors of many pure-play streaming services will take a hard look at themselves in 2018 as they contemplate their strategic next steps. Many will realize that they can’t go it alone. And that leads to M&A, which brings me to …
5. One company’s struggles are another company’s opportunity, and successful “bigger fish” will step up their M&A efforts to acquire those companies that see no long-term path to making it on their own.
M&A is a hallmark of today’s overall digital, multi-platform tech-infused transformation of the media and entertainment business. Just like AT&T made its move to acquire storied traditional Time Warner in 2016 and Verizon closed its acquisition of Yahoo! in 2017, expect some more massive deals in 2018. Right now, Fox is reported to be chased by Disney, Comcast and Verizon for OTT video-driven reasons. And don’t just look within U.S. borders. There is no virtual wall in our borderless digital media world.
6. Data finally becomes a high profile, high priority “missing link” in the strategies of most media and entertainment companies that will try to correct course.
Virtually all traditional media and entertainment companies now openly covet Netflix’s, Amazon’s and Facebook’s user data, as well as how those services leverage that data to their seemingly-untouchable advantage. The quest for data – and the services that provide, analyze and inform – take on new urgency amongst the traditional media and entertainment ranks.
7. Brave new technologies like AI (via virtual assistants Alexa, Siri and Google) flood the mainstream and increasingly impact the worlds of media, entertainment and advertising, while blockchain technology captures industry mind-share and begins to infiltrate mainstream conversations.
The soothing voices of Alexa and Siri guide us through this AI revolution. “Virtual assistants,” “smart speakers” (or whatever you want to call them) will increasingly populate our homes – improve significantly over time – and serve up our favorite content (as well as increasingly targeted and hoped-to-be “welcomed” incentives, promotions and ads).
At the same time, the voice of blockchain technology – barely acknowledged in media and entertainment circles in 2017 – will increasingly be heard and respected at the water cooler. Blockchain technology conceptually holds revolutionary and industry-transforming new offensive and defensive power. On the offensive front, blockchain will enable completely new ways to monetize content and direct creator-to-consumer distribution. And, on the defensive front, blockchain promises to eradicate piracy.
8. Behemoths Apple, Google and Facebook will increase their already-massive investments in immersive technologies, and 2018 will be AR’s break-out year in terms of mass adoption via ARKit and ARCore which give our mobile phones real “spatial sense” as true AR systems.
VCs and strategic investors will also continue to throw boatloads of cash into the overall immersive space.AR’s gold rush also means continued growth in the related “wearables” market and early, very early, consumer adoption of AR-driven eyewear.And, when a market together invests so heavily, a market becomes our consumer reality.
9. Basic rudimentary text-based services and audio podcasts will continue to astound in terms of both scale and counter-programming success.
These forms of media face no significant licensing or royalty headwinds, unlike video and music streaming services. That means that all money that flows from them, flows directly into the pockets of service providers. And, the most successful of these services can scale massively, meaning that monetization can be significant. Very. That’s why text-centric storytelling apps like Yarn are on fire right now.
10. The too often-overlooked, yet potentially game-changing, live event and venue plank of truly 360-degree multi-platform strategies increasingly becomes noticed and offline experiments build.
Call this the “Amazon Effect,” as players across the digital media ecosystem stop scratching their heads about, and rather begin studying, Amazon’s direct-to-theater motion picture releases, brick and mortar retail stores, and Whole Foods super-stores. Amazon understands what most still haven’t even considered – that direct, non-virtual offline consumer engagement may be the most impactful plank of them all, bringing online engagement into the real world (and then back again to create a virtual cycle of brand engagement and consumer monetization every step of the way).
RELATED BONUS PREDICTION — In reaction to 2017’s sobering and frequently shocking negative societal forces, many digital media companies will take things even further by infusing their offline efforts with social impact, an inspirational and motivational element that is already proven to be commercially smart.
Such fully-realized efforts hold the tantalizing power to transform digital media’s virtual cycle into a fully-realized multi-platform virtuous circle. Double bottom-line – profitable both commercially, and socially. Hey, digital media companies. Don’t underestimate the power of humanizing your efforts with a healthy dose of offline “soul.”
Alexa’s not the only Amazon property that’s getting a workplace component at this week at AWS Re:Invent. The LTE-M Button isn’t branded as a Dash Button, but it works in much the same way. Basically it’s a hunk of plastic which, when pressed, will perform one specific task — namely buying stuff online.
Unlike all of the pre-programmed Dash Buttons, this AT&T and AWS Web Services joint ships as a clean slate. A company buys the thing and programs tasks in using Amazon’s AWS IOT service. The idea here is that instead of, say, buying a box of Goldfish crackers, businesses can order office supplies or put in some other sort of work request by hitting a button.
The other big differentiator here is the inclusion of LTE-M — IOT-focused 4G. That means means businesses will be able to use the buttons where there’s no WiFi. That sort of feature is overkill in the home setting, but makes sense off-site in, say, a construction site.
The buttons are due out at some point in the first quarter of next year. No word yet on final pricing, but the special promotion cost is $30 for the first 5,000 sold. That’s several times the standard $5 price for Amazon’s wide range of branded Dash Buttons, but these are obviously much more of a speciality product that both includes LTE connectivity and isn’t subsidized by all of of the stuff you’re going to buy with it.