Murdoch and the Time-Warner Studios Factory: Analysis of a Deal (unconsummated) [UPDATED]

According to an analysis by Joe Flint, Meg James and Ryan Faughnder at the LA Times, Rupert Murdoch's attempt to buy Time-Warner seems to be about more than trying to make money for his shareholders.

What's driving Murdoch is the rapid consolidation of pay television distributors, analysts say. The nation's largest cable operator, Comcast Corp., is in the process of acquiring Time Warner Cable. AT&T is buying satellite broadcaster DirecTV. 

As distributors team up, content providers such as Time Warner, CBS, Discovery, Viacom and Murdoch's 21st Century Fox fear they will lose leverage in negotiation fees for carriage of their channels. They also want to fortify their holdings to guard against incursions by influential technology companies, such as Google Inc. and Netflix.

But it is about the money, too.

Murdoch and his team also see a unique opportunity to create an entertainment juggernaut by combining two of Hollywood's biggest film and TV studios — 20th Century Fox and Warner Bros. It would become the dominant producer of movies and TV shows. 

Time Warner is the parent of HBO, CNN and Warner Bros. Murdoch controls Fox News Channel, the Fox broadcast network and the 20th Century Fox television and film studios. He also controls the Wall Street Journal through his publishing company, News Corp.

And it's not just a massive collection of movies and TV shows that the two juggernauts combine. 

The combination would make Fox an even bigger player in TV sports. Fox has two national cable sports channels, a raft of regional sports networks with rights to the Angels and Clippers. Time Warner's Turner networks televise post-season baseball and professional and college basketball games. Combining the two would allow Fox to compete more aggressively against Walt Disney Co.'s ESPN. 

Most important of all, this acquisition would appeal to Murdoch's pride. 

If Murdoch can pull off the acquisition, it would establish Fox as the world's premier media company. It would also mark a remarkable comeback for the billionaire and his family after a phone hacking scandal at his British tabloids badly tarnished the Murdoch name. Three years ago the company was reeling amid revelations that journalists at the News of the World tabloid had eavesdropped on the cellphone conversations of British celebrities, sports stars, members of the Royal Family and even crime victims.

Although Time-Warner rebuffed him for now, it doesn't seem like this will stop Murdoch. 

Fox is known for being aggressive. In 2007, Murdoch bought Dow Jones & Co. because the newspaper baron wanted to add the prestigious Wall Street Journal to his portfolio. 

Murdoch didn't care that his $5.6-billion bid for Dow Jones was viewed as wildly overpriced — he simply wanted the Journal to bring respectability to his newspaper group. 

Some people anticipate a replay of Murdoch's pursuit of Dow Jones in the bid for Time Warner.

But who would have a problem with the deal?  

The consumers.

...the result may not be good for consumers struggling to pay rising video and broadband bills. 

"They are caught between a rock and hard place," said Gene Kimmelman, a former top Justice Department lawyer, who now leads media watchdog group Public Knowledge, to a Senate Commerce Committee hearing on Wednesday, adding that "there is no competition there to lower prices to consumers." 

The creators, writers, producers, directors, actors, etc. in L.A.

The potential deal would have enormous ramifications to Los Angeles' entertainment economy, which is already reeling from the loss of film production to states that offer lucrative tax credits. The proposed union could result in hundreds of layoffs through the elimination of overlapping jobs.

The government.

A pairing of 21st Century Fox and Time Warner would face intense regulatory scrutiny even though no Federal Communications Commission rules would automatically derail it. 

One obstacle might be the idea of the nation's two biggest cable news outlets under one roof, and Fox has already indicated that it would sell CNN to make the deal more palatable. 

Also, the sheer volume of content and networks that a combined 21st Century Fox and Time Warner would own and the power that would give them over the production community would raise serious antitrust issues. 

"The increased buying power 21st Century Fox would have is a huge antitrust issue I would expect the Justice Department to look at," Derek Turner, research director of Free Press, said of a potential union of the two companies.

So as of now, it seems like Time Warner is not interested in becoming a part of the FOX family.  

This month, Time Warner officially said no. The company said its board had determined that "it was not in the best interests of Time Warner or its stockholders to accept the proposal or to pursue any discussions with 21st Century Fox." 

Time Warner also questioned whether Fox's management was up to the task of running two enormous companies. Investors have, in the past, been concerned about succession plans at Fox. 

But FOX will probably not give up and will raise its cash offer to better entice Time-Warner lest Google, Apple, Amazon or a cable mogul like John Malone snatch the prize.

In the end it's just another day in the era of consolidated media companies where more and more is owned by less and less.

Update: Murdoch's offer potentially go up to $91Bn