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The approval of the mammoth AT&T/Time Warner merger is expected to act as a catalyst for M&A activity on a similar scale, with repercussions affecting media owners around the globe as the telecoms and media sectors become increasingly intertwined.

AT&T’s $85bn purchase of Timer Warner, owner of media properties including HBO, CNN, Cartoon Network and TBS, was approved yesterday (June 12) after 18 months of legal-wrangling following objections by the US Justice Department.

Sources are unanimous in the opinion that the deal signifies greater consolidation in the space, with many players now having to “rethink their position and figure out whether they can go alone, or combine”, according to Lyle Schwartz, president of GroupM North America.

The regulatory climate is now ripe for consolidation 

The regulatory climate is now ripe for telecoms providers, in particular, to further strengthen their hand in the media vertical – a paradigm-shift with implications for every tier of the sector.

Terrence Kawaja, chief executive at investment bank Luma Partners, believes an immediate impact will include US telecoms provider Comcast (which also owns NBCUniversal) tabling an offer for 21st Century Fox, to rival that of the existing proposal by Disney, with others to follow.

“We believe a critical aspect of these deals is the ability to forge a direct relationship with the consumer – that’s why distribution matters for content owners,” he says.

“AT&T, for example, has both mobile phone and TV relationships with consumers which gives them access and data on consumption.”

Gareth Davies, entrepreneur in residence at DCA Capital Advisors, believes a big part of the anticipated M&A activity will be driven by (predominantly US-based) telcos – emboldened by this week’s repeal of net neutrality – all of whom are eager to ward-off the dreaded ‘dumb pipe’ scenario.

Telcos are on the march

Telecoms providers have historically been outmaneuvered by ‘OTT players’ such as Google, that have been able to monetize content and data flowing through telcos' networks (with little overheads).

Davies asserts that AT&T’s latest M&A activity is a harbinger of things to come, with fellow telcos, such as Charter and Liberty Global, likely to follow suit by purchasing media assets.

“With Time Warner, AT&T will secure bragging rights for a wealth of content assets at a time where the internet giants, namely Apple, Amazon, Google/YouTube, Facebook, and Netflix are aggressively investing in original content,” he adds.

“Knowing what you watch, what you search and what you buy is critical to maximizing both consumer and advertiser share of wallet, and AT&T are not alone in knowing that.”

The rise of 'verticalized media' 

Kawaja states that yesterday’s ruling raises the bar in terms of "verticalized media", noting how there is currently more than $300bn in pending deals in the sector, and tips that similar deals will follow as the likes of Time Warner have to compete with “big tech”.   

He adds: “The traditional media companies have a long way to go to even come close to the massive distribution of a Google or Facebook. Even Amazon and Netflix have scale that eclipses the media companies.”

Scott Bender, global head of publisher strategy and business development, Prohaska Consulting, believes there will be some short-term M&A results for smaller scaled deals such as the proposed CBS and Viacom merger.

Telcos and 'big tech' are increasingly rivals 

Bender also notes that it will be interesting to observe what license the ruling grants tech entities such as Google, Facebook, Amazon and Apple, especially as many are now recognized as the new dominant media owners.

“Operationally-speaking, this moves us one big step closer to publishers having always-on/deterministic opt-in relationships with their audiences, helpful given GDPR, ePrivacy, California's upcoming vote, and more proposed regulation expected,” he adds.

AT&T is likely to spend even more 

As regards AT&T’s individual strategy and the likely impact it will have in the wider digital media ecosystem, market observers expect the telco player to make a more aggressive push into the sector with many keen to point out the big-name talent it has accrued throughout the past 12 months.

Ciaran O’Kane, chief executive of WireCorp, believes the deal will spur further M&A activity in the adtech sector, as AT&T looks to further monetize its data capabilities.    

“Brian Lesser [the former GroupM CEO who now heads AT&T’s adtech offering] didn't spend the vast majority of his career understanding ad tech to not see the blind spots in AT&T's ability to monetize its owned-and-operated media,” he says. “Lesser and co will start buying soon, as well as the rest of these super-sized telco and media amalgams.”    

DCA Capital Advisor’s Davies points to the similarities to how AT&T’s strategy is beginning to mirror that of Oath, and also references how the appointment of Lesser is a sign of its intentions, adding how both offerings could act as an alternative to the industry’s walled gardens.

“With AT&T's hiring of WPPs Brian Lesser, a clear statement of intent has been made regarding the need for a unified adtech, data and now content stack to lure advertiser budgets away from Google, Facebook and increasingly Amazon,” he adds. 

“For AT&T specifically it will set the stage for digital M&A,” says Luma Partners’ Kawaja. “Now that AT&T has spent $150bn on traditional TV content and distribution [Time Warner & DirecTV], they now need digital monetization and data capabilities to take advantage.”