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AT&T's Strategic Shift Away from Media

Jun 5, 2021

Question: Why has AT&T’s acquisition of Time Warner and DirectTV so far been such a strategic failure?




Answer: I personally don’t view these acquisitions as strategic failures. To judge what success and failure is, you have to look at company’s baseline criteria and compare actual results.


For AT&T, they set out to acquire both companies, Time Warner and DirecTV, and integrated them as strategic assets to keep and attract customers.


Out of this, the company developed a software based linear TV platform (AT&T TV) that shifted away from the expensive process of deploying and maintaining satellite TV.


The next move, which was a defining moment for the company, was to assemble all of the intellectual property associated with WarnerMedia and develop a direct to consumer streaming platform (HBO Max) to challenge the likes of Netflix, Amazon and Disney.


This platform is a legitimate challenger in the market which grew to over 40 million subscribers two years ahead of schedule[1].


It’s no secret that the future is streaming video.


AT&T understood this and was clear in their intentions to shift DirecTV consumers, who want linear TV, to this platform over time.


Now there’s two big issues that shifted AT&T’s direction away from media:

  1. A renewed focus on providing connectivity (mobility / 5G, fiber broadband).
  2. Increasing pressure to compete in the media business.
  3. Bonus: The pandemic which halted media production for most of 2020 (my opinion).


For a traditional telecom provider, it’s best to stick with what you know best.


Which is why these assets are being sold or spun off into new businesses.


Let’s not forget when you own assets these are often leveraged to a point then disposed of when maximum value has been reached or there’s growth beyond what a company can execute internally.


In the case of WarnerMedia, Discovery is a partner that operates on a global level which has the resources and talent that AT&T doesn’t have nor desires to achieve at this time.


The move to spin off the DirecTV business into a partnership with TPG to jointly own and operate this entity is a smart one.

AT&T still retains a 70% stake of this business while simultaneously removing this from their balance sheet.


Linear TV is declining[2] but far from dead as there’s still many subscribers who pay for this service.


There’s a lot of moving pieces to this puzzle and I won’t pretend to know everything about AT&T’s business structure.


For the 5G opportunity that’s ahead, which is expected to add $500 billion to GDP in the US[1], it’s a good move to focus on your core strengths and stay away from other areas of distraction.