Summary
- AT&T is on the verge of signing J.J. Abrams to a large content production deal.
- The aggressive move will help sell subscriptions and squash threats from the tech giants.
- Disney rallied when announcing their aggressive streaming rollout plans.
- The stock appears set to rally and trades at an absurd 9x EPS estimates.
One of the biggest fears for AT&T (T) shareholders of the Time Warner merger was the entry into a content war. The latest deal for production talent suggests these fears are coming to fruition. The positives for an investment thesis that the stock can get to $40 is that the market likes companies investing for the future similar to how Disney (DIS) rallied on their streaming package reveal.
Image Source: HBO website
Ugly Content War
According to Hollywood Reporter, WarnerMedia is on the verge of signing the production company Bad Robot to a multi-year deal to produce hit shows. The production firm is run by J.J. Abrams and his wife Katie McGrath.
The deal apparently tops the $400 million paid by Warner Bros. TV for Greg Berlanti and the $300 million paid by Netflix (NFLX) for Ryan Murphy. The bad news for AT&T shareholders is that the bidding war included the likes of Apple (AAPL) and Amazon (AMZN).
By all accounts, the AT&T acquisition of Time Warner in October 2016 was only valuable if tech giants like Apple and Amazon were pushed out of entering the original content space. Instead, the wireless and media giant fumbled around and allowed Apple to enter the space and for Netflix to dominate new content spending.
The new WarnerMedia left an easy hurdle for the tech giants to enter the space and chase lucrative monthly subscriptions. Now WarnerMedia is left competing with these tech giants to acquire talent.
The key is that the global market for paid video subscriptions is enormous and growing fast. Disney provided this graphic for investors earlier this year showing estimates of 810 million paid DTC video subs by 2020.
