A new media giant is close to receiving the greenlight by US regulators. The Department of Justice signed off on it on Tuesday and the Federal Communications Commission is on the verge of adding its tick (with conditions). When that is completed shortly, AT&T will be able to complete its takeover of DirecTV at a cost of $US48 billion ($A65 billion).
The approval from the US Justice Department removes a major obstacle to America’s second biggest wireless company (AT&T) and the country’s biggest satellite TV broadcaster combining to threaten the likes of Comcast NBC, the merging Charter/Time Warner Cable/ Brighthouse combine, Walt Disney Co and the Murdoch family’s 21st Century Fox.
The combined company is not a player in the current content boom generated by the rise of Netflix and other streaming video companies and offerings (including CBS, which has just extended its streaming video offering to 124 of America’s major markets, or around 76% of the country).
But it is a major owner of the preferred pathways in the US for content delivery – copper wire, broadband, wireless and now satellite. Some analysts dismiss this sort of combination for being ‘delivery pipes’, but there is strength in size. The bigger these pipelines become, the most power they have (as you see in the way gas and oil pipeline owning has boomed in the US in recent years because the stuff going down them are low value commodities). And while video is worth more at the moment than the pipes, it won’t always be the case and the efficient distribution of content will come to be just as vital.
The Justice Department said in a statement announced its approval:
“After an extensive investigation, we concluded that the combination of AT&T’s land-based Internet and video business with DirecTV’s satellite-based video business does not pose a significant risk to competition.” And the FCC is reportedly considering a conditional approval proposal from staff and its chairman which should come in the next few days.
But it does pose a risk to companies such as Time Warner, CBS, Viacom, 21st Century Fox and the like because they are relatively small operators compared to the likes of the combined company, Comcast NBC, the giant Disney group (ESPN, ABC and significant cable channels), and smaller cable operators.
Even the merging Charter/Time Warner Cable/Brighthouse group faces pressure from larger companies. Next you will probably find the combined AT&T/DirecTV looking to buy content companies.
But owning the pipes to such a degree as the new company will do, will make it more attractive to the likes of Netflix and its streaming rivals as all they need are as many delivery pathways as they can get their hands on.
With streaming video in all its forms expanding rapidly (live sport will be the next and biggest battleground) the combined AT&T/DirecTV could end up a bigger player in the global media than it now seems.
And to think that Rupert Murdoch once controlled DirecTV (and the departing chief operating officer, Chase Carey used to be CEO of DirecTV). Rupert Murdoch sold it to John Malone when the latter held the Murdoch empire to ransom during the shift of domicile from Australia to the US nearly 10 years ago. Malone later floated it and it is now in the grasp of AT&T.
All this underlines the growing need for the Murdochs to find a big takeover target to give themselves the financial clout to compete with these mega giants – Disney, Comcast, AT&T/DirecTV. That’s why the attempt last year to buy Time Warner made sense (that’s the production HBO owner, not the cable company). Now it’s an opportunity lost.
The irony here is just as the Murdochs were separating their empire into the video and content business – with the growth prospects, and pushing out News Corp (the newspapers, books and Australian pay TV and real estate business), a move that was followed by a host of other dual content owners in the US, the more significant trend was the resizing of the content ownership and delivery side of media, and then the dramatic emergence and growth of streaming video.
Now with a market value of around $US68 billion, 21st Century Fox is a minnow in the US compared to the $US100 billion to $US200 billion plus giants now being created or sitting atop of the sector – Comcast, Disney, AT&T/DirecTV and the Charter group, plus the highly complex cable empire John Malone (who controls Charter) has created.
The irony is that the best media businesses Fox now control are Fox News in the US and the huge pan European Sky broadcasting giant based in the UK. Perhaps a bid for all of Sky would fix Fox’s six and clout problem. It looks the easiest way to do that, and doable, with Fox owning 38% of Sky.
