AT&T late Thursday finally completed its $85 billion acquisition of Time Warner, taking control of Warner Bros., HBO and the Turner networks. John Stankey, AT&T’s entertainment head, will run the company’s former Time Warner media businesses, making the longtime telecom exec one of the most powerful people in Hollywood.
AT&T spent more than a year and a half battling to win Time Warner. Now it has to justify the deal, which has added to the telecom giant’s already debt-heavy balance sheet. The risks are high. MoffettNathanson analyst Craig Moffett noted earlier this week that AT&T is taking on the extra debt at a time when its existing businesses are under pressure: revenue in key areas like wireless service and the video business were down in the most recent quarter. Meanwhile earnings, measured before interest, taxes and other charges, also fell.
Time Warner’s businesses face their own downward pressure, thanks to cord cutting. And offering programming for free to its wireless customers, as AT&T says it will do, won’t help matters. That programming has to be paid for. All AT&T is doing is subsidizing its wireless business with its new entertainment arm.
AT&T appears to have embraced the Netflix philosophy of spending money as though there’s no tomorrow. It will rebound on both companies. But for AT&T with a huge debt burden and dividend-hungry shareholders, the reckoning may come sooner.