Seeking growth amid a shifting telecommunications industry, AT&T has bet on media content. The company plans to acquire Time Warner for $85 billion in one of the biggest media acquisitions in history. The transaction will likely take over a year to receive regulatory approval, but both AT&T and Time Warner executives are optimistic. AT&T CEO Randall Stephenson has compared the deal to Comcast’s acquisition of NBC Universal in 2013, which was approved after a long period of regulatory scrutiny. This vertical merger will bring together Time Warner’s media content and AT&T’s distribution network in one company.

Consumers Dropping Landlines, Cable TV

The telecommunications market has shifted with many consumers dropping landlines and cable TV. Mobile use is increasing exponentially with mobile users representing 65% of digital media time in 2015. This means people are primarily using smartphones to read articles, play games and watch videos than are using computers.

Telecommunications and media companies are starting to take notice of these trends. Just last year AT&T’s biggest rival, Verizon, acquired AOL in a push to reach more mobile users. And earlier this year, it announced it would acquire Yahoo to boost its mobile unit.

Deal Synergies

One benefit of the deal is that AT&T will be able to provide more data to Time Warner and advertisers without raising prices for consumers or withholding the content from competitors (like Verizon).

AT&T may also plan to create original, exclusive content leveraging Time Warner’s expertise in media. Online streaming services such as Netflix and Amazon have successfully produced their own original content.

In the long term, AT&T wants to build up a robust, next-generation infrastructure in order to compete with cable providers. “I will be sorely disappointed if we are not going head-to-head” with cable providers by 2021, said Stephenson.

Growing in a Declining Market

As demand for traditional telecommunication services shrinks, AT&T and other providers must look outside their current market for new growth opportunities. In a declining marketing, consolidating, or simply gaining more market share will not help you grow in the long term. If AT&T managed to capture the entire market for landline phones, their revenues would still shrink as consumers abandon landlines.

By acquiring Time Warner, AT&T will own content including popular networks such as HBO and CNN. Organically growing its own content business would take time and be difficult given the large size of other media content producers like Disney and CBS. As an established business, Time Warner gives AT&T a foothold in the media market and immediate access to new users.

If like A&T you are stuck in a declining marketing, identifying markets with future demand for your company’s products or services is the key to growth. You can explore future demand by using our tool, the Opportunity Matrix, to understand where you want to position your company strategically looking forward.

Start exploring today 

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Aloha! We hope you have been enjoying these last few weeks of summer. Our very own Managing Director, John Dearing, recently returned from Maui, Hawaii, where he spoke at the National Credit Union Directors Conference hosted by CU Conferences on August 12 -15. John presented “Strategic Mergers and Acquisitions: Exploring External Growth” in two parts to over 100 credit union directors and executives.

FinTech Acquisitions

One trend highlighted at the conference was the focus on financial technology (FinTech) acquisitions. Banks in particular have been acquiring startups or creating their own incubators and venture capital arms.

Recent examples include:

  • Capital One acquired Level Money, a San Francisco-based money management app in January 2015.
  • BBVA acquired Simple, a banking startup, for $117 million in February 2014.
  • Context 360, Motion Savvy and Bracket Computing joined Wells Fargo’s accelerator program. The program involves direct investment in the startups and six months of mentoring for the executive teams.
  • Mastercard is using strategic M&A to build customer loyalty, data analytics and safety and security. Since 2014 it has acquired C SAM, a mobile wallet service; Pinpoint, a loyalty provider; ElectraCard Services, a payment processor; Transaction Network Services (TNS) a payment gateway service; and Applied Predictive Technologies (APT), a cloud-based analytics provider.

Mobile Banking on the Rise

Like banks, credit unions should also consider using acquisitions to build their technology. With the demand for mobile technology services ion the rise, more members are relying on smartphones to access anything and everything – including their financial data. Mobile banking is the largest banking channel. More than 25% of the world’s population will be mobile bankers within four years and organizations without a clear strategy will lose members.

Following Demand is Critical to Growth

Rather than build up this capability internally, credit unions can acquire to add unique technology products and remain competitive.

Mobile technology is just one example of how credit unions can use strategic M&A to grow. Perhaps you want to quickly expand your geographic footprint in a growing metropolitan area; acquiring another credit union would allow you to do so. Observing current demand and future demand is critical to strategic growth and may provide a competitive advantage.  As you go about developing your strategic plan, consider using acquisition to help your organization achieve its growth goals.

The beautiful view at the National Credit Union Directors Conference hosted by CU Conferences in Maui on August 12-15, 2015.

The beautiful view at the National Credit Union Directors Conference hosted by CU Conferences in Maui on August 12-15, 2015.

How important is BlackBerry’s newest smartphone, the Q20, to the future of the company? Recently I had the opportunity to speak with CNNMoney about this. With Q20, which will be released in the second half of 2014, BlackBerry is returning to its core customers by offering them what they want: a hard keyboard, buttons, and secure BlackBerry servers.

Businesses should focus on customer demand to drive growth by thinking about what customers desire now and also what they will want in the future.  While the Q20 is a good start ─ it includes a hard keyboard, the basic feature core BlackBerry consumers love ─ I think it’s only half of the turnaround equation for BlackBerry.

The piece Blackberry is missing, or hasn’t addressed yet, is how it will capture future customers. Concentrating on current customers is important, but leaders must also try to anticipate the needs of those who are not yet customers to gain market share and propel growth.  As I mentioned to CNN, I don’t see a convincing argument for iPhone or Android users to switch to Blackberry with this smartphone release. Perhaps the Q20 is only the beginning stage in BlackBerry’s recovery. For now, concentrating on its base may be wise, but for future growth it will need to think outside the box.

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Facebook’s $3 billion offer to buy Snapchat points to a growing number of mobile technology acquisitions.

Yesterday The Wall Street Journal reported Facebook offered $3 billion to acquire Snapchat. While Snapchat has declined, Facebook’s offer points to growing trend of technology companies acquiring rather than building new mobile apps.

Most recently, we’ve seen a string of acquisitions by Marissa Mayer, including Tumblr for $1.1 billion, in an effort to boost Yahoo!’s mobile presence. In June Google acquired traffic app Waze and April 2012 Facebook acquired photo-sharing app Instagram for $1 billion.

Acquisition is a powerful way for companies to get new technology quickly access new customers. Yahoo! acquired Tumblr in part for its 300 million unique visitors, many of who are teenagers. Facebook likely wanted to acquire Snapchat due to its growing popularity with teens. Teen users of Facebook have declined over the past year. By buying mobile apps, companies not only acquire new technology, they also broaden their customer base by acquiring new users.

 

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AOL has announced it will acquire Adap.tv, a video advertising platform, for $405 million cash and stock. Adap.tv’s proprietary technology allows advertisers to control their video advertising across different media channels, permitting AOL to provide customized advertising based on viewers habits and location.

Internet media companies are targeting video because of higher advertising revenues. Even Facebook, which is primarily a social networking site, will introduce video ads beginning in the fall.

With Adap.tv’s technology, someone watching “Friends” in New York at 3 a.m. may get a different ad than someone watching the same show in Colorado at 6 p.m. We’ve already seen some of this customized video advertising with Hulu and Netflix. Technologies like Adap.tv’s are making advertising more powerful and effective by getting the right ad in front of the right audience.

The AOL-Adap.tv deal is particularly interesting in the context of the Omnicom-Publicis merger that will form the largest advertisement agency in the world.  From an M&A standpoint, media and advertising companies like AOL are in transition and we are seeing major changes in content, delivery and distribution.

The Washington Post and The Boston Globe recently were bought by wealthy individuals, Amazon CEO Jeff Bezos and Red Sox owner John Henry. These papers were once extremely profitable, but now with print media becoming almost obsolete and advertising revenues sinking, traditional newspaper revenues have been cut significantly.

The advertising world is turning upside down. As users consume media on different channels, advertisers must follow. My kids do not watch TV, but they watch lots of video – online and on their phones.  Adap.tv’s technology is important as users move from traditional television to computers to smartphones and tablets. Financial Times reports 38 percent of smartphone owners regularly watch videos on their phones.

In an industry facing disruptions, advertisers must make changes to their existing technology or capabilities or they will struggle to be relevant. Those in any industry who stay on the sidelines will struggle to compete with other players. Companies like Google, Yahoo and AOL are expanding their capabilities through acquisition.

AOL will use Adap.tv to integrate advertising with video content, which AOL has invested heavily in. In 2012, AOL created the first live video channel for the internet, Huff Post Live. (According to AOL’s 2012 Annual Report).

AOL is a huge media advertising company with a wide range of companies, from websites like Huffington Post to AOL’s Sponsored Listings for advertisers. Some of the companies are heavily branded with AOL, such as AOL Mail and AIM, while others like Huffington Post, TechCrunch and Mapquest are branded separately.   It will be interesting to see how AOL will integrate Adap.tv with the rest of the company and how the competition will respond.

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There are many reports that Google will buy Israeli mobile traffic app Waze for $1.3 billion. This acquisition would allow Google to solidify  its dominant position while actively preventing Apple or Facebook from acquiring the technology.

If you have the number one product or service, one way to keep your customer base is by keeping your competitors out of the game.

Get defensive by blocking your competitor from obtaining the same assets. This is an intentional and legitimate strategy. The best way to fend off competition is either to directly purchase the competitor themselves or to buy a valuable company that your rival is positioned to acquire.

In this case, both Apple and Facebook were rumored to acquire Waze earlier this year.

In January, there were rumors Apple would acquire Waze. Apple had released Apple Maps in September 2012 with disastrous results.  Aquiring Waze would have provided mapping technology Apple lacked.

In March, Facebook was rumored to be in talks to buy Waze for $1 billion. However, that deal fell through after a reported disagreement between the two companies.

With this acquisition, Google also demonstrates the importance of proactive growth. Although Google Maps is the top mapping application Google recognizes that historical performance is no guarantee of future demand. While Google’s acquisition of Waze would not guarantee its top spot in mapping, it does help ensure neither Apple nor Facebook will be taking over any time soon.

*Update: Google confirms it has acquired Waze.

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