When Disruption Spurs Innovation and Investment

Via AT&T News Room

Oct 24, 2016

By: David McAtee, AT&T Senior Executive Vice President and General Counsel

In America today, consumers are enjoying new golden age of television. Choices are expanding, content is being created at unprecedented levels, and on-line distribution of video has become an unstoppable force driven by surging consumer demand. But the next great phase of video innovation is yet to come. As broadband becomes nearly ubiquitous, there are limitless opportunities to innovate in the design and distribution of video. Consumers want their favorite video content anytime, anywhere, and in formats optimized for their own devices. At the same time, consumers are increasingly calling for interactive programming that they can integrate with other content, such as their own personalized images or commentary, and then share on social media platforms. As a result, the question for the video industry is not what consumers want; it is whether today’s configuration of content creators, aggregators, and distributors can deliver it.

Market transformations often begin when a single well-positioned company breaks the mold and introduces a disruptive business model that responds to untapped consumer demand. Building on AT&T’s acquisition of DIRECTV in 2015 and the more than $150 billion dollars that AT&T has invested since 2011 in its networks and associated operations, the vertical merger of AT&T and Time Warner will, for the first time, combine a leading content company with a nationwide wireless carrier, transforming both video and the mobile Internet. Together, these two companies will help build a new online video ecosystem that features broader distribution of Time Warner’s content, ignites innovation for all viewing platforms, and spurs greater investment in the nation’s broadband infrastructure, particularly ultra-fast 5G wireless networks that will one day compete head-to-head with the broadband offerings of entrenched cable companies.

Absent this merger, neither AT&T nor Time Warner could readily achieve this vision. Because the video ecosystem is rapidly evolving in unforeseeable directions, it has been difficult for major content producers and distributors to negotiate contracts with the digital rights necessary to support the full range of potential innovation and experimentation and to respond quickly to today’s fast-changing marketplace. Bargaining friction over these rights has limited the scope of video innovation and perpetuated conventional distribution models that benefit incumbent cable companies, which still dominate traditional television distribution and ultra-fast broadband services, already control substantial content, and now intend to move into mobile as well. This hurts consumers and protects legacy providers who would much prefer that things stay as they are. We can do better.

This transaction will reshape the competitive landscape. For the first time, a nationwide mobile broadband provider will have a major content provider as an “anchor tenant” to support a broader array of video offerings. Of course, those offerings will include content from many other providers, but within them, AT&T and Time Warner will begin to create innovative programming optimized for viewing on any device and launch new generations of video services that are interactive, immersive, multi-user, and integrated with user-generated content. Put simply, AT&T and Time Warner will innovate within the system, forcing other providers to compete with innovations of their own and creating demand for wireless connectivity that will give all wireless providers greater confidence to deploy 5G networks faster, deeper, and more robustly than they otherwise would. The result is a virtuous cycle of innovation and investment that expands consumer choice, incentivizes investment in the nation’s broadband infrastructure, and allows wireless companies like AT&T to bring needed competition to consumers looking for a wireless alternative to their cable broadband.

And we can accomplish all of this without harm to competition. As we begin the merger review process, we look forward to sharing these facts with our regulators. Vertical mergers like this one have long been recognized as being fundamentally pro-competitive, and for good reason. This transaction is about giving consumers more choices, not less. It is about expanding the distribution of Time Warner’s content, not restricting it. It is about stimulating the creation of more and better content, generating demand for next generation wireless services, and delivering consumers what they want. This only happens when the right combination of assets yields the right incentives to invest, innovate, and transform. The next revolution in video awaits.

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