A.T. & T. Wants Time Warner for Eyes, Ears, and Ads

Since people use A.T.  T. to access “content” the acquisition might help the company do better by creating some of that...
Since people use A.T. & T. to access “content,” the acquisition might help the company do better by creating some of that material itself.Photograph by Jack Plunkett / Bloomberg / Getty

On Saturday, when A.T. & T. announced that it hopes to acquire Time Warner for more than eighty-five billion dollars, one of its chosen avenues for doing so was to post a (https://www.youtube.com/watch?v=9wne8UZWcOw). On it, the A.T. & T. and Time Warner logos appear together onscreen, and then A.T. & T.’s C.E.O., Randall Stephenson, appears, wearing a jacket, but no tie, in front of a bland corporate backdrop. “The media and communications industries are converging, and, when it comes down to it, premium content always wins,” he says, speaking directly to the camera. He is followed by Time Warner’s C.E.O., Jeff Bewkes, who talks to the camera about strategic priorities and distribution channels while sitting in front of a New York City skyline. This goes on for three minutes. As of Tuesday morning, the video had some nineteen thousand views. It did not go viral.

The video could have been an exhibit in A.T. & T.’s case for acquiring Time Warner. Almost everyone in the U.S. is already online, which leaves little room for growth in the company’s core business—giving people Internet and cell-phone service. The premise of the acquisition is that, since people use A.T. & T. to access “content”—jargon for the TV episodes, movies, music, photos, and articles that take up so much of our online time—A.T. & T. might do better by creating some of that material itself. But A.T. & T. has no experience producing TV episodes or movies—“I don’t know how to run a movie studio,” Stephenson testified Monday on CNBC—so it’d do better to acquire a company that does. (Time Warner owns the Warner Bros. film studios, and television properties including HBO, CNN, and TBS.) Some of this might seem like a stretch: By that logic, should mall owners be trying to buy the Gap? But this thinking has become common among A.T. & T.’s competitors. In 2013, Comcast, the cable provider, acquired NBCUniversal. Last year, Verizon bought AOL, and this year it agreed to purchase Yahoo.

To understand the reasoning, it helps to remember that telecom companies and media companies each have something that the other needs. The companies that provide your cell-phone and home-Internet service have access to detailed personal data—where you are at a given moment and which Web sites you visit, to name a couple. That information is valuable to marketers. But, in order to use it to target their advertisements, they need to reach people while they’re online—and that’s where the media companies, which attract people with content but have limited information about viewers, come in. Imagine, for example, that you’ve been making frequent business trips to the Bay Area. If you’re an A.T. & T. subscriber and use your smartphone to watch an episode of “Game of Thrones,” on HBO—which is owned by Time Warner—you might start seeing ads for a hotel in downtown San Francisco near where your meetings have been taking place.

So far, executives at the telecom and media companies haven’t laid out specific plans for how they’d use customers’ information—the “Game of Thrones” example is just a hypothetical—but they’ve all been explicit about their interest in combining forces when it comes to advertising. “There’s basically going to be more effective advertising,” Bewkes said on CNBC. In a July interview with the Wall Street Journal, Marissa Mayer, the C.E.O. of Yahoo, argued that Verizon’s planned acquisition would lead to “much richer data and much richer targeting.” A.T. & T. and Verizon are staking their respective futures on slightly different visions. A.T. & T. seems to be seeking to acquire a producer of high-quality programming and hoping that advertisers will be willing to pay a premium for it. Verizon, meanwhile, appears to be targeting a purveyor of lower-quality but pervasive content—Yahoo’s sites are among the most visited on the Internet—under the assumption that more-modest advertising rates will be made up for by the sheer quantity of ads it can publish. Still, despite the strategic differences, A.T. & T. and Verizon’s bets on media companies are both, on some level, about advertising.

Critics of the A.T. & T.–Time Warner deal have focussed on the fact that regulators are likely to closely scrutinize the plan and potentially reject it. The antitrust argument against an acquisition is that it would reduce competition and, in turn, lead to higher prices, less choice, and worse customer service. (In addition to providing cellular service, A.T. & T. owns DirecTV, a satellite-television provider.) So far, much of the analysis of the potential antitrust issues has centered on how A.T. & T. might use Time Warner’s content: Will A.T. & T. try to give its own subscribers preferential access to HBO shows, for example? Stephenson dismissed that line of thinking: “I’ve read about this in all these newspapers this morning, about restricting the access to the Time Warner content—it’s nonsensical,” he said on CNBC. He noted that this approach “makes no economic sense,” since it would mean a smaller audience, and therefore hobble the money-making potential, for Time Warner; Stephenson surely is also aware that a strategy that limits A.T. & T.’s own content would not pass regulatory muster.

A question that has gotten less attention is what all this consolidation will mean for online advertising—and, more to the point, the people who are being advertised to. On Monday, Bewkes argued that more targeted advertising, based on more detailed information about consumers, is ultimately good for us. “Most of the cost of all the great programming that’s being made on TV can be borne by advertising, and it can be advertising that is useful to you, rather than something you are not interested in,” he said. In other words, if more of the cost of TV shows is paid for by advertisers, we viewers at home won’t have to bear as much of it—and, meanwhile, the ads we see will be designed just for us. But nothing is truly free. One counterargument—that it’s dangerous for any corporation to have access to too much information about us—has recently been bolstered. Verizon announced its planned acquisition of Yahoo in July; two months later, Yahoo revealed that, in 2014, five hundred million of its users’ accounts had been breached by hackers.