AT&T Dreams of a Hollywood Ending

AT&T is buying Time Warner to help it succeed in the future world of media consumption. In many ways, it already is living in that world, and it isn’t doing all that well. That alone is an important warning sign of the risk the telecom company is taking.

AT&T’s deal to buy Time Warner for $85.4 billion in cash and stock marks the wireless carrier’s second major bet in as many years on beefing up its exposure to the pay-TV ecosystem. With DirecTV, AT&T became the country’s largest pay-TV distributor. With Time Warner, it would become the owner of some of TV’s most popular networks and programming. Both target companies achieved their dominance in the world of traditional pay TV. AT&T, which is preparing to launch an Internet TV service, hopes to use those assets to be ready for a world where people predominantly watch video online and on their mobile devices. Still, there is no guarantee that future will be as lucrative as pay TV’s past, and that could erode the value of AT&T’s purchases. If that future is anything like the present for AT&T, it will be hard for the company to justify the price of the deal. AT&T has lost 200,000 video customers in the past year, despite the purchase of DirecTV last July. That could be a sign of things to come for Time Warner, as it tries to grow sales of its content to pay-TV providers. AT&T’s strategy is also far bolder than that of rival Verizon. The latter has chosen to tackle the wireless problem by pursuing a lower-risk strategy of growth through short-form video, funded by Internet advertising. That means a failure for Verizon would be less costly. To justify its purchase of Time Warner to investors, AT&T needs a Hollywood ending.