December 5, 2018 / 7:29 PM / 7 days ago

Breakingviews - AT&T fails to grasp the true value of “Friends”

The cast of "Friends" appears in the photo room at the 54th annual Emmy Awards in Los Angeles on September 22, 2002. REUTERS/Mike Blake

NEW YORK (Reuters Breakingviews) - What’s the value of having friends? For AT&T, the answer seems to be about $100 million. That’s how much the telecoms group may charge streaming service Netflix to show the hit TV show of that name for another year. Given AT&T’s plans to launch its own video service, depriving a rival of a blockbuster might have been smarter.

Netflix founder Reed Hastings has done a service to die-hard Ross and Rachel fans who had an online meltdown when it appeared “Friends” might be leaving the platform. On the face of it, though, he is paying a high price. The $100 million reported by the New York Times is more than triple what Netflix originally paid.

That said, the $120 billion Netflix ought to be able to tell a bad deal from a good one. The service has a vast trove of data on what its 130 million viewers want to watch. Sure, Hastings is spending on programming like a drunken sailor – Netflix’s streaming content obligations are nearly $19 billion – but that is because he anticipated a bitter war with other media companies. Walt Disney’s Bob Iger, for instance, is pulling most of the Magic Kingdom’s fare off Netflix in preparation for its own forthcoming video product.

The big mystery is why Dallas-based AT&T would want Netflix to have “Friends” at all. It is planning to roll out its own direct-to-consumer video service in the fourth quarter of next year, having bought Time Warner for $85 billion. AT&T Chief Executive Randall Stephenson said on Tuesday the goal is not to become another Netflix. But it’s not like that would be a bad thing: Netflix’s stock has doubled in two years, even after the recent tumble in tech shares.

Stephenson could have held out, watched Netflix users weep via Twitter, and transferred the show to, say, his own struggling DirecTV Now service. The fact he didn’t raises the possibility that AT&T really wants the money. A $220 billion company shouldn’t need to scrape around for such relatively tiny amounts, but this one has roughly $180 billion in debt to pay down. Either way, sharing “Friends” with Netflix suggests AT&T isn’t cut out for the media shark-tank.

Breakingviews

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