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Is AT&T Planning to Enter the Media & Entertainment Space?

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As per a recent report by Bloomberg, leading wireless and pay-TV company AT&T Inc. (T - Free Report) is looking to foray into the media and entertainment industry. Notably, the telecom giant intends to expand through the acquisition of a number of media and programming content producing companies over the next few years. Notably, AT&T’s pay-TV rival and cable giant Comcast Corporation (CMCSA - Free Report) has also adopted the same strategy to diversifying its business.

Focus on Video Programming

As prospects in the wireless industry are dim due to a saturated market, telecom players are looking to boost revenues through the adoption of different strategies. Although business services solutions have been gaining momentum, some cash rich telecom companies are looking for further diversification. AT&T’s wireless rivals Verizon Communications Inc. (VZ - Free Report) and T-Mobile US Inc. (TMUS - Free Report) have been active in the mobile advertisement space. AT&T, on the other hand, has been focusing on the pay-TV industry and is the largest pay-TV operator in the U.S. post its acquisition of satellite TV provider DIRECTV. However, the pay-TV industry faces cord cutting and regular escalation in programming content costs, affecting margins to a large extent. Thus, a move into content production space will help AT&T reduce programming costs.

The Bottom Line

As AT&T operates as a pay-TV operator as well, investing in media and content programming will allow it to achieve backward integrated synergies, mostly reduction of cost to deliver content to subscribers. However, such a move will not be easy as the company doesn’t have the required cash to expand a newly created media division. Thus, it has to raise more debt for foraying into the media space. However, with a net debt at the end of second quarter of 2016, piling up further debt may spook investors.

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