{"id":15141,"date":"2016-11-16T18:59:42","date_gmt":"2016-11-16T23:59:42","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/a-bigger-piece-of-pie-converging-content-creation-and-delivery-at-att-time-warner\/"},"modified":"2016-11-16T18:59:42","modified_gmt":"2016-11-16T23:59:42","slug":"a-bigger-piece-of-pie-converging-content-creation-and-delivery-at-att-time-warner","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/a-bigger-piece-of-pie-converging-content-creation-and-delivery-at-att-time-warner\/","title":{"rendered":"A Bigger Piece of Pie: Converging Content Creation and Delivery at AT&T-Time Warner"},"content":{"rendered":"

AT&T\u2019s historical role in the media industry <\/strong><\/p>\n

Telecom companies are the invisible highways that enabled digital transformation of media in the last decade. Without AT&T, Verizon, Sprint, Comcast, Time Warner, and other players providing the LTE and high-speed copper or fiber technologies that deliver our content, the smart phone\u2019s value proposition would be zero, there would be no \u201cNetflix and chill,\u201d and studios\u2019 content distribution would be limited to movie theaters and DVD sales or rentals. Telecom and media thus have a distinctly symbiotic relationship.<\/p>\n

As the smartphone revolution neared saturation ~2012, telecom companies faced a period of significant decline in subscriber growth1<\/sup> (Exhibit 1). Intense competition between operators ensued, but it was difficult to convince consumers what \u201cbetter coverage\u201d or \u201cfaster speed\u201d really meant. Having largely captured the value of \u201cwave 1\u201d of the digital revolution, the telecom industry needed a new way to capture value.<\/p>\n

Looking externally, telecom companies saw that advertising spend had increased nearly 25% 2010-20152<\/sup> (Exhibit 2) driven by digital methods, and that the content licensing revenues paid to studios (costs to telecom P&Ls) increased 14% in the same period3<\/sup> (Exhibit 3). For studios, a stream of mergers had not cracked the question of how to make media production profitable in the digital age. Convergence was at hand.<\/p>\n

 <\/p>\n

Time Warner acquisition: a business and operating model transition for AT&T<\/strong><\/p>\n

AT&T\u2019s acquisition of Time Warner is still recent news and the merger will not close until 20174<\/sup>, but initial statements indicate that significant changes to both AT&T\u2019s business and operating models are at hand.<\/p>\n

\"Current<\/a>
Diagram reflects author’s understanding from all sources listed in the post<\/em><\/figcaption><\/figure>\n

 <\/p>\n

AT&T\u2019s business model in the first wave of digital revolution was to provide users high-speed, vast coverage on mobile and broadband networks for telephone service, data access, and video content5<\/sup>. Network engineers and technicians built data highways to carry the expensive content that buyers licensed from studios6<\/sup>. AT&T captured the content delivery value they created through monthly fees charged to mobile and broadband customers. Studios produced TV and film content, the value of which they captured by distributing directly to end users via theater or DVDs or indirectly to end users via TV and internet licensing agreements with telecom companies7<\/sup>. Telecom companies captured some but the studios captured most of the value from selling advertisers access to the content subscriber base.<\/p>\n

 <\/p>\n

 <\/p>\n

\"Diagram<\/a>
Diagram reflects author’s understanding from all sources listed in the post<\/em><\/figcaption><\/figure>\n

In the new AT&T-Time Warner company, both AT&T and Time Warner will still perform their fundamental tasks of operating networks and producing content. But, AT&T\u2019s business has fundamentally changed from being a network operator to additionally being a content producer. AT&T\u2019s strategy and key stakeholders thus both broaden in scope. Financially, both businesses have significant up front capital investment requirements with long payout periods and the allocation method for investment dollars will need to be defined. Hopes are that revenue will increase from 1) new subscribers seeking access to AT&T\u2019s premium content and 2) from advertisers\u2019 willingness to pay more for access to a larger subscriber base.<\/p>\n

Operationally, Time Warner is now a partner, rather than a supplier, for AT&T, changing the nature of the two companies\u2019 relationship. The companies will also have to redefine decision rights for major choices such as strategic company direction, performance metrics and incentives, and investment distribution between networks and new content. Tactically, AT&T and Time Warner can combine back-office functions such as HR, Finance, and IT to realize cost savings.<\/p>\n

 <\/p>\n

Opportunities and challenges ahead <\/strong><\/p>\n

AT&T has the opportunity to define what good looks like in a converged media world. Major mergers such as Comcast-NBC Universal and Verizon-AOL8<\/sup> have produced moderate to unsuccessful results9<\/sup> but AT&T has the advantage of learning from them. Using that knowledge, AT&T has potential to successfully merge content creation and delivery mechanisms in a \u201cwave 2\u201d digital revolution to increase existing subscriber bundling and attract new subscribers to their services.<\/p>\n

AT&T will also now hold immense amounts of media consumption data on its users \u2013 could it be further monetized? Initial studies indicate that significant value could lie in surgically targeting consumers rather than broadly targeting a region as is done today10<\/sup>. For example, AT&T could learn from mobile payments that Joe Subscriber is a dog owner and show him dog food ads during a TV commercial break rather than cat food ads. Consumer satisfaction increases and AT&T is able to charge advertisers more for highly targeted views.<\/p>\n

We cannot forget that AT&T is also a significant player in the commercial network sphere, with ~50% of its revenue coming from business connectivity and data solutions5<\/sup>. IoT promises even greater use of commercial networks and AT&T must be careful not to downgrade its enterprise image by aligning with a content creation studio. AT&T\u2019s new monolithic size will also demand that its executives find the right balance between consumer and commercial focus.<\/p>\n

The Time Warner acquisition is a significant moment in AT&T\u2019s 100+ year history and with the right decisions made about how to adapt their business and operating models, AT&T can create significant value for both their customers and their shareholders in its second wave of digital revolution.<\/p>\n

 <\/p>\n

796 words<\/em><\/p>\n

 <\/p>\n

Exhibit 1<\/strong><\/p>\n

\"Telecom<\/a><\/p>\n

1<\/sup>US \u2013 Broadband services and 3G services<\/p>\n

\u00a0<\/strong>\u00a0<\/strong><\/p>\n

Exhibit 2<\/strong><\/p>\n

\"Advertising\"<\/a><\/p>\n

\u00a0<\/b>Note: Below the Line includes internet, direct, viral, exhibitions, and in-store promotions.<\/p>\n

2<\/sup>US \u2013 Advertising<\/p>\n

\u00a0<\/strong><\/p>\n

Exhibit 3<\/strong><\/p>\n

\u00a0\"Licensing<\/a><\/strong><\/p>\n

3<\/i><\/span><\/sup>Estimated domestic licensing revenue<\/i><\/p>\n

\u00a0<\/strong>\u00a0<\/strong><\/p>\n

Sources<\/strong><\/p>\n

1<\/sup>\u201cUS \u2013 Broadband services and 3G services,\u201d Federal Communications Commission and Organization for Economic, http:\/\/marketsizes.mintel.com.ezp-prod1.hul.harvard.edu\/snapshots\/USA\/47\/performance\/single<\/a>, accessed November 2016 via Mintel Market Sizes.<\/p>\n

2<\/sup>\u201cUS \u2013 Advertising,\u201d Interactive Advertising Bureau, Kantar, Media, Zenith Optimedia, and eMarketer, http:\/\/marketsizes.mintel.com.ezp-prod1.hul.harvard.edu\/snapshots\/USA\/84\/performance\/single<\/a>, accessed November 2016 via Mintel Market Sizes.<\/p>\n

3<\/sup>\u201cEstimated domestic licensing revenue of the motion picture and video industry in the United States from 2010-2014,\u201d US Census Bureau, January 2016, https:\/\/www-statista-com.ezp-prod1.hul.harvard.edu\/statistics\/185112\/domestic-licensing-revenue-of-the-motion-picture-and-video-industry-since-2005\/<\/a>, accessed November 2016 via Statista.<\/p>\n

4<\/sup>AT&T, \u201cAT&T to acquire Time Warner,\u201d October 22, 2016, http:\/\/about.att.com\/story\/att_to_acquire_time_warner.html<\/a>, accessed November 2016.<\/p>\n

5<\/sup>AT&T 2015 Annual Report, February 12, 2016, http:\/\/www.att.com\/Investor\/ATT_Annual\/2015\/downloads\/att_ar2015_completeannualreport.pdf<\/a>, accessed November 2016.<\/p>\n

6<\/sup> \u201cConvergence of Content and Distribution in the US,\u201d October 31, 2016, http:\/\/techpp.com\/2016\/10\/31\/convergence-content-distribution-us\/<\/a>, accessed November 2016.<\/p>\n

7<\/sup>Time Warner 2015 Annual Report, April 29, 2016, http:\/\/ir.timewarner.com\/phoenix.zhtml?c=70972&p=irol-reportsannual<\/a>, accessed November 2016.<\/p>\n

8<\/sup>Alina Selyukh, \u201cAT&T\u2019s Merger with Time Warner Follows Decades of Industry Deals,\u201d NPR, October 22, 2016, http:\/\/www.npr.org\/sections\/thetwo-way\/2016\/10\/22\/498996253\/timeline-at-ts-merger-with-time-warner-follows-decades-of-industry-deals<\/a>, accessed November 2016.<\/p>\n

9<\/sup>Emily Steel, \u201cHow Comcast and NBCUniversal Used Minions to Fuse an Empire,\u201d New York Times, November 6, 2016, http:\/\/www.nytimes.com\/2016\/11\/07\/business\/media\/media-merger-success-comcast-and-nbcuniversal-say-yes.html?_r=0<\/a>, accessed November 2016.<\/p>\n

10<\/sup>John Osborn, \u201cThe Next Business Model for Ad-Supported TV?\u201d, AdAge, http:\/\/adage.com\/article\/media\/business-model-advertising-supported-tv\/134746\/<\/a>, accessed November 2016.<\/p>\n","protected":false},"excerpt":{"rendered":"

As slowing market growth drove fierce competition between telecom companies, AT&T announced its purchase of Time Warner to capture value created by the content flowing through its networks <\/p>\n","protected":false},"author":2554,"featured_media":15142,"comment_status":"open","ping_status":"closed","template":"","categories":[2071,2148,2147],"class_list":["post-15141","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry","category-att","category-converged-media","category-time-warner"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-rctom\/assignment\/digitization-challenge-2016\/","yoast_head":"\nA Bigger Piece of Pie: Converging Content Creation and Delivery at AT&T-Time Warner - Technology and Operations Management<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/a-bigger-piece-of-pie-converging-content-creation-and-delivery-at-att-time-warner\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"A Bigger Piece of Pie: Converging Content Creation and Delivery at AT&T-Time Warner - 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