AT&T and Time Warner’s CEOs Explain the Benefits of Their $85 Billion Merger

Targeted advertising, 5G investment are likely outcomes

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After a whirlwind weekend in which AT&T announced its $85 billion deal to acquire Time Warner, the companies' two CEO sat down to explain what it all means.

In the megamerger, the telecommunications powerhouse will buy Time Warner for $107.50 per share, or about $85 billion, half in stock, half in cash. The new behemoth will combine Time Warner's hefty film and TV properties (including Warner Bros., HBO, TNT, TBS and CNN) and AT&T's robust broadband (U-Verse), wireless (AT&T) and satellite (DirecTV) offerings.

AT&T chairman and CEO Randall Stephenson and Time Warner chairman and CEO Jeff Bewkes appeared on CNBC's Squawk Box this morning to talk about the deal, which stems from a lunch they had together two months ago.

"We meet regularly and we were talking about what's happening in media," including SVOD [subscription video on demand] and the increase in mobile consumption of video, said Bewkes. "We realized that if we had ourselves together, that we could create more innovations for consumers."

The deal came together quickly because "once you get conviction, and you agree on what the deal should look like, you move. And that's what we did," said Stephenson.

One of the biggest advantages of the merger will be more effectively targeted advertising. "There's going to be basically more effective advertising, so it won't be as disruptive. You'll have more efficiency there. And that means that more of the cost of all the great programming that's on TV can be borne by advertising and it can be advertising that's useful to you, rather than something you're not interested in," said Bewkes.

"Last year, more than half of the growth of advertising in the United States went to two companies, Google and Facebook. We need to increase competition for advertising across television, internet companies," Bewkes continued. "When you do that, what you end up with is more of the burden being born by advertising companies, less of it being borne by consumer."

The deal is all about speed. "The world of distribution and content is converging, and we need to move fast," said Stephenson. AT&T wants to curate content differently for mobile environments, and give consumers the ability to make clips of content and share it quickly via social media.

As a result of the merger, "we're going to be pushing really, really hard to innovate and iterate much faster," said Stephenson. He expects the demand in this mobile environment to drive demand for his company to invest in 5G, which will deliver 1 GB speeds in mobile technology. "We could have a viable nationwide competitor to … Comcast," he added.

Because of the added competition, "If I'm an advertiser, I love this. If I'm a content creator, I love this," said Stephenson.

The companies anticipate that it will take a year for the merger to win the necessary regulatory approval. "The nature of this deal is unique from anything we've done before in that it's a vertical integration," said Stephenson, noting that most of the deals that haven't survived regulatory scrutiny have been horizontal mergers. "This has none of that. There are no competitors being taken out of the marketplace."

Six years ago, said Stephenson, the biggest regulatory issues surrounding the Comcast/NBCUniversal merger were the government's efforts to preserve net neutrality and protect over the top players. Now, net neutrality is "done," he said. "On OTT, I somehow think Netflix is going to make it. … Amazon just might make it too."

Stephenson said the reports that indicate AT&T would restrict access to Time Warner content to outside companies are "nonsensical," given that AT&T is buying Time Warner specifically because of its broad content distribution. Constricting that "makes no economic sense."

Both men said they hope all of Time Warner's execs remain in place after the merger. That includes Bewkes, who vowed he's "going to stay for a period of at least a year or two to see how we need to make this work." Added Stephenson: "I feel really comfortable with Jeff's plan on keeping the talent in place and ensuring we have continuity."

Bewkes doesn't see this AT&T deal as a rehash of Time Warner's disastrous merger with AOL in 2000, which "was misdescribed at the time." That union was doomed after "broadband distribution came in and changed the game," said Bewkes. "This is not the same thing at all."

The Time Warner CEO insisted that his company is not entertaining offers from other bidders. "We've made a deal," he said. "We're not going out and talking to other people."

@jasonlynch Jason Lynch is TV/Media Editor at Adweek, overseeing trends, technology, personalities and programming across broadcast, cable and streaming video.