Tit-For-Tat

Last week, when Judge Richard Leon dismissed the Department of Justice’s complaint attempting to block the AT&T-Time Warner vertical merger, much of our attention shifted immediately to whose next, that is, among the firms competing in the media space, who is mostly likely to pair up?  Who needs (wants) more assets in this rapidly changing industry?  Comcast didn’t waste any time, as one day after the Judge’s decision, they offered to pay $65 billion for some of 21^st Century Fox’s assets, a 19 percent premium over Disney’s December 2017 bid.   Disney will surely respond.

But, what about other firms? What about Verizon?  While AT&T and Verizon do not compete head-to-head in local markets for broadband subscribers, they do compete for PayTV subscribers in markets where Verizon offers its FiOS service in competition to AT&T’s DirecTV.  At the end of 2017, Verizon’s FiOS video services were available to 14 million households in 9 states plus the District of Columbia. (It had 4.6 million subscribers)

But, the real “knock-em-sock-em” competition is in the national wireless telecom industry where Verizon, as the largest provider (35% market share), goes tit-for-tat with AT&T (33.5% market share) on key differentiators such as pricing, data plans, network availability and reliability, and customer service.   With the DirecTV assets. AT&T can bundle its wireless and PayTV services at discounted prices.  At the margin that should attract new customers and help reduce churn.  With the Time Warner assets, AT&T will now be able to provide additional bundling options, starting with its WatchTV service being launched this week.  Verizon has no video content, unless you count its free, ad-supported Go90 app, that it can bundle in with either FiOS or wireless.  A disadvantage?  Something it must change?  Maybe, but maybe not.

MAYBE --- GO GET CONTENT

·         Avoid being beholden on third parties (and competitors) to provide the content.  Take control of the most important input to the business – content. 

·         There are some attractive content assets that may be available NOW.  Those being talked about the most include CBS, Viacom, Discovery, and Lionsgate.  These recognizable brands packaged with FiOS and wireless services would give an immediate boost to sales and support subscriber retention.

·         Video content integrated with Oath assets may provide cross-platform opportunities to boost advertising revenues.

MAYBE NOT – STAY THE COURSE WITH THE FOCUS ON HAVING A GREAT NETWORK

·         In its 2017 Annual Report, Verizon states “We don’t wait for the future, we build it”.  The firm’s core competency is communications not entertainment.  (AT&T, by contrast, defines itself as an entertainment AND communications company.) 

·         Buying content will be a distraction and complicate management and resource allocation decisions.  Verizon plans to “double-down on network superiority”.

·         Just because your rival makes a move, does not mean matching it is the best strategy. 

·         Lock-up highly-valued content in strong partnership relationships.  The mutual interdependence between distributors and content owners is good for both parties.

·         Consider other partnerships/purchases that enhance rather than distract management and financial resources.  Would Google sell its Google Fiber networks?