Opinions expressed in this piece are solely those of the author and do not represent the views of SNL Kagan.
Has cable news pioneer CNN (US) become some sort of endangered species?
You might think so given all chatter lately by politicians and pundits about requiring CNN to be spun off from Time Warner Inc. before its proposed merger with AT&T Inc. can be blessed by regulators.
Size, of course, is the big rub with opponents of the deal. AT&T is already one of the largest telecom and media companies on the planet, and it was willing to pay nearly $109 billion for Time Warner, including $85.4 billion in cash and AT&T stock for Time Warner's equity, when the deal was announced in October 2016.
Combined with Time Warner, AT&T's total enterprise value (TEV) would be about the fourth largest among all potential suitors reported during the past few years to be interested in acquiring Time Warner (or at least in acquiring its two most coveted assets: CNN and premium pay TV network HBO (US)).
My list of the players ranked by TEV includes notes about pending acquisitions and entities that control multiple companies.
The Yahoo TEV in my chart is the proposed deal value of certain operating assets that Verizon Communications Inc. may or may not acquire. Yahoo! Inc.'s actual TEV including international investments is $42.7 billion.
Those against the AT&T/Time Warner marriage include President Donald Trump, U.S. Senator Bernie Sanders, veteran tech blogger Walt Mossberg, former CNN president Jon Klein, plus a slew of politicians, bloggers, commentators and lobbyists of every political persuasion.
Most seem to be saying the sheer size of AT&T would inhibit creativity, innovation, independence and even honest news coverage. Some suspect that President Trump would like CNN to be weakened because he believes the network is biased against him, and it would only become stronger under the wings of a deep-pocketed and potentially more powerful parent.
AT&T Chairman Randall Stephenson has vowed publicly that AT&T is "committed to continuing the editorial independence of CNN."
That promise has not convinced former CNN senior White House reporter Jessica Yellin, who proposed in her recent "How to Save CNN from Itself" op-ed column that CNN be spun off into some vague public trust funded by philanthropists, foundations and small donors.
Not that CNN needs charity to survive. As noted in a recent online commentary, CNN has become a cash cow since Jeff Zucker took over as president of the network in 2013 and revamped programming, talent and staff. In 2016, CNN and its affiliates CNN en Español and CNN International generated $494 million of operating cash flow, according to SNL Kagan estimates recently published in the "Economics of Basic Cable Networks." This helps explain why some Wall Street analysts pegged CNN's value at $10 billion in 2014. Granted, the valuation would be at a lofty 20x cash flow, but cable networks have fetched such premiums when they do sell, which is not often.
This fear of parent size is an ongoing anxiety among regulators and operators. In an era of media and telecom consolidation I suspect this recurring suspicion will continue. AT&T's rival Verizon is said to be thinking about a big cable TV merger to better compete in a more complex, competitive and increasingly scalable market.
As an investor and analyst, I considered numerous arguments about corporate scale and the sanctity of news in the mid-1980s when the big three broadcast networks changed hands, and again in the mid-1990s when CBS (US), ABC (US) and CNN were merged into larger entities. I heard it again in 2011 and 2013 when Comcast Corp. took over NBCUniversal Media LLC.
But nobody is calling for Time Warner to spin off Cartoon Network (US). Apparently size does not matter when it comes to protecting a channel favored by our children.