With ample lines of credit and a
relaxed global monetary policy, AT&T can easily move up and down the ICE
food chain with massive acquisitions.
Sensing opportunities presented by changing marketplace conditions and
threats to legacy business lines, the company has opted to buy market share and
expertise. Other major ICE ventures have opted to make new products and
services, or to blend make and buy as appropriate.
I believe differences
in strategy largely depends on the confidence a venture has in its ability to
integrate acquisitions into the family by exploiting the skills, expertise and market
share the acquired venture offers. We
hear how merged companies will exploit synergies and efficiencies, but doing
this requires great finesse. Can
AT&T embrace people, plans and skills not invented from within?
Consider
what Amazon, Facebook, Google, Microsoft and other major firms have done on the
make versus buy dichotomy for telecommunications transmission capacity. These firms have opted to build undersea
fiber optic transmission capacity rather than lease it from incumbent carriers
on a cost plus, plus basis.
Making
content carriage instead of renting it makes absolute sense, because content companies
can achieve savings in a major cost center, but one that is fungible. In other
words, transmission capacity has substantial costs that content companies must
incur, but transmission capacity does not significantly differ between carriers,
or between a self-provisioning venture and one that leases capacity.
Content
does not have such fungible characteristics, because of a far wider range of
good versus bad quality. Fiber optic transmission capacity matches, best
practice, global standards, while content can be nation specific, idiosyncratic
and quite risky to produce. Perhaps
Netflix has found ways to reduce risk of failure through data mining and a
business plan where even large investments in single series will not threaten
the ongoing viability of the company.
Generally speaking, even today, generating a winning content formula
involves gut instinct, a long learning curve and many failures. That explains why producers stick and copy with
winning formulas resulting in countless sequels, prequels and duplicates.
AT&T
has ample funds to experiment, but with such a deep pocket the company risks
buying at the top of a market and paying too great a premium over the stock
price. Consider its $48.5 billion DirecTV
acquisition. AT&T has bought a
venture that has substantial recurring investment costs including the
satellites with ten year useable lives and launch technology that historically has
a one third probability of failure or live reducing anomaly. Worse yet, AT&T did not get any
internally generated content for its investment, at a time when consumers
appear increasingly disinclined to pay for large and costly bundles of content,
only a small portion of which they want to view.
On the
other hand, AT&T has grown and become a major powerhouse through successful
acquisitions. Only AT&T and Verizon
remain from the seven divested Bell Companies.
Additionally AT&T knows how to bundle services and bill for it.
Maybe
AT&T can keep its acquisition success streak intact. If it succeeds, it will have beaten stiff
odds and proven its superior management skills, forecasting talent and business
acumen.
