Randall Stephenson has no intention of selling trophies like CNN to get his $85 billion dream deal past Washington. Ask him why and he'll make his case with, of all things, "Gunsmoke."
Stephenson, chief executive officer of AT&T Inc. and would-be master of Time Warner Inc., does it with a story about the cable channel Starz. As Stephenson tells it, Starz tried to use original programming as a bargaining chip in contract talks with DirecTV, bragging on "Power" and other new shows and never mentioning the Western that has been in syndication for 42 years.
"They didn't know their most-watched content was old 'Gunsmoke' episodes," Stephenson said recently. (A Starz spokesman noted that "Power" appeals to a younger, more urban demographic.)
The point is that DirecTV was well aware of Marshall Matt Dillon's enduring popularity, and the clout behind that insight is what has Stephenson so fired up about acquiring all of Time Warner. The satellite provider had the goods because it can tap the data its parent AT&T has built by tracking the habits of more than 100 million television, internet and wireless customers.
That kind of information is golden. Combined with the advertising reach of Time Warner programming including Turner Sports and HBO, it would be explosively profitable, in Stephenson's view. But he can't leverage it if antitrust regulators insist he ditch some properties -- either DirecTV or Time Warner's Turner Broadcasting division, which owns CNN, TBS, TNT, the Cartoon Network and dozens of others.
Stephenson has said he won't do that. AT&T is going to the mat, dispatching lobbyists to make the case for the union on Capitol Hill. They're also highlighting President Donald Trump's intense dislike for CNN to suggest politics is at play, according to people familiar with the matter.
Time Warner, intact, would be such a prize that AT&T will fight in court for it, said Jan Dawson, an analyst with Jackdaw Research. Simply put, "they need to own content."
John Donovan, who runs AT&T's satellite, phone and internet operations, explained it another way in a recent interview: "We think there is a lot of value that customers will gain from us doing a better job as a media company understanding what they want to view, how they want to view it," he said. "And the flip side, is that based on your viewing experience what are some experiences and content that are desirable to you. Each can make the other better."
The Department of Justice is pressuring AT&T to agree to divestitures, according to people with knowledge of the situation. They said the agency is concerned about the power wielded by AT&T, the biggest pay-TV distributor in the country with DirecTV and U-verse.
Some investors and analysts have had other worries -- namely, that combining quite different companies to create a nearly $200 billion behemoth is asking for trouble. Skeptics point to the disastrous Time Warner-AOL match-up. They also note that AT&T purchases are usually absorbed; DirecTV, acquired in 2015, is run by phone company executives who replaced most original managers.
That's why "my cocktail-party response used to be that this deal doesn't make a ton of sense," said Amanda Lotz, a media professor at the University of Michigan. "But if they collectively use the intelligence they have in concert with how Hollywood works, there might be something to be gained."
In other words, Stephenson just needs to let Time Warner be Time Warner. "They could still fumble it -- but this deal doesn't depend on changing either company in order to reap financial benefits," said Rosabeth Kanter, a professor at Harvard Business School.
Stephenson, who went to work for what was then called Southwestern Bell in 1982 when he was just out of college, has said this tie-up will mimic the structure of other unions of disparate businesses, such as Comcast Corp. and NBCUniversal. He would oversee two CEOs running separate operations.
The magic would come from the super-precise advertising -- on everything from "Anderson Cooper 360" to "The Big Bang Theory" reruns to National Basketball Association games -- that would be possible with AT&T's vault of statistics.
"AT&T isn't viewing this merger as an opportunity to make a new 'Gunsmoke,' but you are going to find more targeted ads on 'Gunsmoke,'" said Jennifer Holt, a media professor at the University of California at Santa Barbara. "They are trying to reinvent themselves as one giant advertising network."
If it works, AT&T can get enough revenue from advertising to offer video for compelling prices, or even for free, Donovan said. "Ad technology will provide us some flexibility and alternative ways to price and advantage, the same way many of our Silicon Valley competitors have removed the friction of collecting money from you," he said. "That is a compelling value proposition for a user because we don't have to get involved in this relationship of us collecting money, sending bills."
If the feds allow it. Antitrust officials have encouraged AT&T to come up with creative solutions to address its concerns -- for example, selling Turner but maintaining a minority stake or a joint venture to sell advertising together, according to people familiar with the matter. That would theoretically let AT&T reap the rewards it seeks without owning so many media properties, but the company is resisting such an idea, the people said.
Dawson, the analyst, said regulators might in the end decide simply to put some restrictions and conditions on the marriage, as they did with Comcast and NBC, rather than demand spinoffs. "But AT&T may have to fight pretty hard to get there."