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Time Warner/AT&T Merger: Hollywood Success Now Means Survival of the Biggest

Now that the floodgates are open, what comes next is anyone's guess — but it's going to alter the Hollywood landscape.

The logos for Time Warner and AT&T appear above alternate trading posts on the floor of the New York Stock Exchange, . A federal judge has approved the $85 billion mega-merger of AT&T and Time Warner, potentially ushering in a wave of media consolidation while shaping how much consumers pay for streaming TV and moviesFinancial Markets Wall Street AT T Time Warner Antitrust, New York, USA - 13 Jun 2018

Time Warner/AT&T

Richard Drew/AP/REX/Shutterstock

At one level, U.S. District Court Judge Richard Leon’s ruling on Tuesday didn’t tell us anything we didn’t know: Bigger is better. The AT&T and Time Warner merger only reflects digital-behemoth distruptors like Netflix, Apple, Google, and Amazon, which telegraphed long ago that traditional media companies need to bulk up.

However, Leon’s decision is also the equivalent of frantically waving a green flag to start a media arms race, one that will radically change the face of entertainment.

“I think it’s an incredibly exciting time,” said Paul Telegdy, NBC Entertainment’s president, alternative and reality group. “What happens over the next several months is really the equivalent of what’s happened over the last 30 years in terms of consolidation in our business. Buckle up.”

In case Leon’s decision to permit the $85.4 billion merger without preconditions wasn’t clear enough, the judge threw in a little pop-culture philosophy: “You don’t need a weatherman to know which way the wind blows,” he wrote, quoting Bob Dylan.

As Leon suggested, his decision wasn’t a radical one. Given the relative ease with which past mergers received approval (including Comcast/NBCUniversal, even with a handful of easy stipulations), the Dept. of Justice had a weak case, one that appeared to be based more on Donald Trump’s hatred of Time Warner’s CNN as anything else.

Consumer protection groups and industry unions, including the Writers Guild, sounded a dire note: “Today’s decision is a blow to consumers, content creators, and competition,” the WGAW wrote in a statement. “The WGAW knows too well the harms of vertical mergers and welcomed the DOJ’s efforts to block this one. Unfortunately, a combined AT&T-Time Warner, like so many mergers before it, will lead to higher prices and fewer choices.”

To some degree, competition is fiercer than ever, and there are just as many, if not more, options for both talent and consumers as streaming services bulk up. Performers and producers flock to those companies and the promise of lucrative deals and a new kind of distribution. However, that wealth only spreads so far: The guilds remain rightfully concerned that the middle class of performers will be shut out in this new environment. As for consumers, once there are just a handful of megacompanies controlling the content pipeline, pricing is expected to increase.

“Netflix SVOD changed everything,” NBCUniversal International president Jeff Wachtel said. “These days, we really are experiencing a generational shift. Everything is informed by the speed [at which streaming services can make] $300 million deals at the drop of a hat.”

The need to bulk up continues to become clear as Netflix shells out billions for programming, aiming to become its own self-perpetuating ecosystem. The service doesn’t blink at paying talent like Ryan Murphy and Shonda Rhimes hundreds of millions of dollars for their services.

But even prior to Leon’s ruling, the old guard was starting to fight back. On June 7, Warner Bros. TV signed a massive $400 million deal to lock in megaproducer Greg Berlanti — perhaps a sign of things to come.

“If I’m Warner Bros. TV and I want to keep him in the company, you have to make a deal at that scale,” NBC Entertainment chairman Bob Greenblatt said. “The business is completely different now than it was even two years ago. We all know Netflix is out there to own the universe. They’re going to make these deals.”

AT&T/Time Warner now has everyone predicting a consolidation frenzy as the big bulk up to compete with those digital interlopers. Comcast is preparing to battle Disney’s $52.4 billion bid for 21st Century Fox’s production assets, and has already made a $31 billion grab at Sky. Viacom/CBS, and Sinclair/Tribune are also on the docket. Discovery has already acquired Scripps. Lionsgate and AMC Networks are frequently named as companies ripe for the picking.

Even though the DOJ failed to stop AT&T/Time Warner, it may have a better case should Comcast beat Disney for the Fox assets. Comcast is a major distributor through its cable and broadband offerings, and owns a massive stable of networks and studios. Disney could be an easier regulatory sell: It isn’t in some of those spaces, and has fewer TV production units and cable networks.

The goal now is to be one of the behemoths left standing. Greenblatt believes after some smaller media companies are subsumed, there will be just three or four. Comcast will be “one of the companies that’s going to be — without a doubt, whether Fox comes into the ecosystem, or Sky, or not, is going to be — one of the three or four biggest media companies in the world,” he said.

Even so, there’s no guarantee this will stave off, or counterbalance, Silicon Valley’s march on Hollywood. The mid-size companies that merge in the hope of getting bigger may still not be massive enough. And perhaps there’s still a space for companies like CBS to thrive by being… well, tiny. But for companies ready to rumble in the new-media thunderdome, Tuesday’s ruling means gloves are off.

“We’re competing not only with ourselves and each other in media space, but we’re competing with Apple, and Google, and Netflix and all these other companies,” Greenblatt said. “So it’s really important to have an enormous scale, an international reach, a global reach.”

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