• Purchase price implies a total equity value of $85.4 billion
• Total transaction value of $108.7 billion, including Time Warner’s net debt
• AT&T says “The future of video is mobile and the future of mobile is video”
• Goal is to give customers “unmatched choice, quality, value and experiences”

There’s something about a mega-deal that CEOs just can’t resist, no matter what the actual commercial benefits may turn out to be, and no matter how many of them have ended in abject failure. Telecoms, in particular, appears susceptible to this fixation.

Right on cue, AT&T announced yesterday that it has entered into a definitive agreement to acquire content colossus Time Warner. The stock-and-cash purchase price implies a total equity value of $85.4 billion, though when you throw in Time Warner’s net debt the total transaction value reaches an eye-watering $108.7 billion. It makes Verizon’s deal to buy Yahoo for $4.8 billion look like a non-event – though recent revelations about Yahoo might actually result in it being a real non-event. It also dwarfs Comcast prolonged and complex take-over of NBC Universal.

“This is a perfect match of two companies with complementary strengths who can bring a fresh approach to how the media and communications industry works for customers, content creators, distributors and advertisers,” said Randall Stephenson, chairman and CEO of AT&T. “Premium content always wins. It has been true on the big screen, the TV screen and now it’s proving true on the mobile screen. We’ll have the world’s best premium content with the networks to deliver it to every screen. A big customer pain point is paying for content once but not being able to access it on any device, anywhere. Our goal is to solve that.  We intend to give customers unmatched choice, quality, value and experiences that will define the future of media and communications.”

At least that’s what AT&T wants to do. In recent months, AT&T has made no secret about how it wants to focus on what it can offer customers over and above connectivity. Content and delivery tend to operate in a cyclical fashion. At the moment, we are once again in the cycle of bundling connectivity with content – desirable and premium content drives customer growth and retention, which in turn provides the rationale for more investment in connectivity. We’ve seen it in UK with BT, which spend aggressively to acquire premium football rights in order to build a pay-TV platform that would lead to growth in its fixed broadband subscriber base, moving into mobile broadband with its acquisition of EE.

Linear TV is heading for the rocks, no doubt about it. The distribution model for TV has fundamentally shifted in the past couple of years, thanks in no small part to Netflix and the proliferation of high-speed broadband. If you own desirable content (ideally created yourself and owned outright, or at least the exclusive distribution rights), then consumers will come to you. “Own it and they will come,” would be the new Field of Dreams. Why be satisfied with merely providing the carriage for TV and film content, allowing others to profit over the top of your network? Bundle it all together; what could possibly go wrong?

This is where it gets interesting, because the more we see premium content being exclusively tied to certain service providers (Netflix, Amazon, Apple, Hulu, etc , etc), the more the market fragments. Some consumers might be happy with a bundle of a wide array of content (95 per cent of which is pretty rubbish), others may be happy picking and choosing the exact shows they want via unbundling and paying relatively lower monthly access fees to a couple of OTT providers. But when the best content gets distributed across an ever increasing number of exclusive providers, the cost savings to consumers disappear and it actually becomes more expensive to watch the shows you want.

Would having exclusive access to Time Warner’s (admittedly vast) library of content – either completely exclusive or exclusive for a certain time period, say a couple of years before it is sold to other carriers – be enough of an incentive to switch to AT&T? Either for fibre or mobile broadband (and the picture changes again when 5G becomes widespread). And other than exclusivity, what else can AT&T offer to make the consumer proposition more attractive?

“With great content, you can build truly differentiated video services, whether it’s traditional TV, OTT or mobile,” said Stephenson. “Our TV, mobile and broadband distribution and direct customer relationships provide unique insights from which we can offer addressable advertising and better tailor content. It’s an integrated approach and we believe it’s the model that wins over time.”

Oh yes, he mentioned “advertising”. A struggling business to be at the moment, and one which desperately needs the application of big data and analytics. Whether consumers want tailored advertising is another matter (one of the draws of Netflix is that it’s ad-free).

“Combining with AT&T dramatically accelerates our ability to deliver our great brands and premium content to consumers on a multiplatform basis and to capitalise on the tremendous opportunities created by the growing demand for video content,” said Jeff Bewkes, chairman and CEO of Time Warner. “Joining forces with AT&T will allow us to innovate even more quickly and create more value for consumers along with all our distribution and marketing partners, and allow us to build on a track record of creative and financial excellence that is second to none in our industry.

“My senior management team and I are looking forward to working closely with Randall and our new colleagues as we begin to capture the tremendous opportunities this creates to make our content even more powerful, engaging and valuable for global audiences,” said Bewkes.

The press statement says that the new company “will deliver what customers want”, and that, apparently, is “enhanced access to premium content on all their devices, new choices for mobile and streaming video services and a stronger competitive alternative to cable TV companies.”

Owning content will also “help AT&T innovate on new advertising options”, which, combined with subscriptions, it says will help pay for the cost of content creation. “This two-sided business model – advertising- and subscription-based – gives customers the largest amount of premium content at the best value.”

Of course, the deal will have to be approved by the regulatory authorities first, and will no doubt come under incredibly close scrutiny, with a fair few competitive objections. Don’t expect a deal to be finalised until late 2017 at the earliest.

In the meantime, consumers’ dreams of being to access whatever content they want, whenever and wherever, are unlikely to become reality. The full disaggregation of disintermediation of content is going to remain a dream for many years to come. Until then, service providers should stop telling us that they are “delivering what customers want”. Such statements are highly debateable.