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READING THE TEA LEAVES

What the AT&T-Time Warner merger means for HBO

By Adam Epstein

You’ve heard the news by now: Over the weekend, AT&T agreed to buy Time Warner for $85 billion, marrying one of America’s largest mobile and broadband providers with the content factory responsible for Warner Bros., CNN, TBS, and TNT.

Oh, and a little TV channel called HBO.

HBO is the crown jewel of Time Warner’s portfolio, and surely one of the major reasons AT&T was interested in acquiring the company in the first place. The closest comparison to this merger would be Comcast’s 2011 purchase of NBCUniversal, which gave the cable TV and broadband internet company ownership of NBC’s array of entertainment assets, including dozens of TV channels and its film studio, Universal.

But NBCUniversal doesn’t own a content powerhouse as lucrative—or as reputable—as HBO. The fact that HBO could soon have new owners (pending regulatory review) is, in itself, a historic development for the future of television.

How the merger will affect HBO and its millions of “addicts,” as CEO Richard Plepler likes to call the network’s loyal subscribers, is unclear at this point. A spokesman for HBO declined to comment.

So here’s our best guess at what will happen, based on our reading of the tea leaves:

Nothing will change immediately

First off, if approved by regulators, the deal is not expected to close until the end of 2017—meaning you shouldn’t expect much, if anything, to change at HBO in the next year or two.

AT&T CEO Randall Stephenson, who will lead the joint company, said he’s not going to mess with HBO. “I made it clear to Jeff [Bewkes, Time Warner CEO] that the talent he has assembled is a really important part of this deal,” Stephenson said Saturday (Oct. 22), on a conference call. “It’s really critical to make sure the continuity of the team” persists after the deal, he said. At the WSJDLive conference today in California, Stephenson said Time Warner will retain total control of HBO as a subsidiary of AT&T.

Those are just words, but they’re the right ones. And in any case, AT&T would be silly to meddle with what’s already a prosperous business. While mega-mergers like this one often lead to some executives being forced out in the name of “synergy,” that probably won’t happen this time. Plepler and HBO programming chief Casey Bloys will likely remain at their respective posts.

But there could still be a major culture clash

AT&T is a telecommunications titan. Time Warner is an entertainment conglomerate. The companies are different enough that experts think the merger will be approved by US regulators—but different isn’t always good.

HBO is known around Hollywood as a network that allows its talent to flourish without overbearing executives breathing down creatives’ necks. Case in point: HBO is letting Game of Thrones creators David Benioff and Dan Weiss end the show, even though it’s a massive hit, because that’s what they think is best from a storytelling standpoint. It’s a tough pill for HBO to swallow, but decisions like that are what attract so many of the world’s best storytellers to the channel.

In a post-merger world, however, it’s easy to imagine that AT&T brass might not be so easily swayed—especially if Thrones was helping to reel in new broadband customers. It’s easy for Stephenson to say he’ll take a hands-off approach with HBO, but it’s another thing to actually do it.

HBO’s talented roster of writers, producers, and actors might need assurances that they’ll still get all the attention their shows require. If not, they could mosey on over to, say, FX, where they know they’d be treated right.

A more Netflix-like HBO?

“The goal is to become HBO faster than HBO can become us” is a thing Netflix content boss Ted Sarandos said a few years ago, envisioning the future of the TV industry. Both have succeeded in different ways at “becoming” the other: HBO now offers its own Netflix-like standalone streaming service, and Netflix has produced a number of its own original shows in the HBO mold.

So perhaps AT&T can help HBO become even more like Netflix—if it decides it needs to.

The press release announcing the merger said that it will lead to “new forms of original content built for mobile and social.” It also pronounced: “The future of video is mobile and the future of mobile is video.” It’s not hard to imagine a future in which AT&T tries to gear the HBO experience toward its wireless customers. AT&T’s direct relationship with its customers could provide HBO with all sorts of benefits, from targeted ads to an improved data analytics operation.

Stephenson announced today that AT&T’s forthcoming internet TV service, DirecTV Now, will include 100 channels for just $35. It’s unclear if that package includes HBO (which is valued at around $15 as a standalone offering), or if the premium network will be a separate add-on.

An influx of cash from AT&T could enable HBO to spend more on content, perhaps making the network more of a content-churning machine, as Netflix is, than a prestigious content curator. (Netflix will spend $6 billion on content next year, while HBO spends about a third of that.) HBO is loathe to drastically alter its identity, but it’s possible that the network will eventually have more shows than it can fit into a Sunday night lineup.

Another possibility: The merger could finally be the jumpstart Bewkes needs to finally, actually, for real this time, make good on the promise of “TV Everywhere.”

In 2009, Bewkes helped pioneer the concept (when Time Warner still owned Time Warner Cable—the two are now unrelated companies), which argued that paying TV customers should have seamless access to their shows when they want and on as many devices as they want. It was the industry’s first real response to the threat of cord-cutting, but since then the idea has fizzled out.

An AT&T-Time Warner partnership could, in theory, allow AT&T TV, internet, and mobile customers to watch Game of Thrones or Westworld on all their devices, paying (and logging in to authenticate) only once.

If you’re not an AT&T customer, don’t worry

Regulators won’t allow AT&T to give HBO too much preferential treatment, and HBO would be silly to ask for any in the first place. HBO’s growth hinges on its wide availability, so shutting out the other cable and internet providers would just be bad business.

There’s virtually no possibility that HBO ever becomes an “AT&T exclusive”—so if you use a different wireless carrier or subscribe to Comcast or Time Warner Cable TV, you don’t have to agonize over the implications of this merger. You’ll still be able to watch your HBO shows as you have been.

But that doesn’t mean that AT&T customers won’t have any advantages.

What seems possible—likely, even—is that AT&T allows its customers to freely stream HBO without any data caps. T-Mobile does this with certain streaming video services (including HBO Now). In fact, AT&T is already doing it too: the company exempted streaming on DirecTV from its mobile data caps. While that may sound like a net neutrality violation, the US Federal Communications Commission has so far allowed this practice to continue.

We’ll see just how strict the FCC intends to be in enforcing fair play as the regulatory process begins. Until then, we can only wait. This historic merger, and, in turn, the very future of the television industry, depends on what the US government decides over the next year.

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