Why AT&T needs Time Warner more than the media company needs it

While AT&T (NYSE: T) needs content to continue its business, Time Warner (NYSE: TWX) may have been able to survive on its own — and some experts fear the telecommunciations giant may not have what it takes to run a media company.

Time Warner doesn't have direct distribution to consumers, save a few small products like HBO Go. But it can negotiate deals with cable providers, thanks to its wealth of premium content, which includes Turner channels such as CNN, Cartoon Network and TNT as well as Warner Bros. films.

"AT&T needs Time Warner more than vice versa," said Forrester senior analyst Jim Nail. "The Netflix (NASDAQ: NFLX) example shows us that content is more powerful than distribution. With all the good content that Time Warner has, they'll be able to get better distribution [on their own] than AT&T."

AT&T and Time Warner announced on Saturday that the telecommunications giant was purchasing the media company for more than $85 billion. The deal amounts to about $107.50 per share in a cash and stock transaction. It will still have to pass U.S. regulators, and AT&T is planning to argue the two are complementary businesses and not be a monopoly .

There are some benefits for Time Warner by partnering with AT&T, Nail said. For one, it can get more involved in the digital advertising industry. It can also have an easier path for mobile distribution. Time Warner has patents on short and long form video technology to aid in the transfer of content to mobile and other devices, but partnering with AT&T can improve that, according to analytics firm MCAM.

On the other hand, AT&T is facing a dwindling cable subscriber problem as people cut the cord. Even though it is the largest pay TV operator in the U.S., it needs to diversify its revenue streams. What it has now is some of the tools to make a successful cross-screen advertising business. It has data on millions of cable and wireless subscribers, as well as an advertising technology called AT&T AdWorks that helps brands target specific customers with ads on different TVs and screens. But it lacked content to advertise on — and that's what Time Warner brings.

But in order for this deal to work and benefit both sides, AT&T needs to continue investing in Time Warner's content and find new ways to create original, exclusive shows and movies. It's been investing in digital media through Otter Media, a partnership with former Fox executive Peter Chernin's Chernin Group. It also has some original series with DirecTV, not nothing that rivals Time Warner's household names.

"To me, they're [AT&T] making a big financial mistake," said Eric Schiffer, CEO of private equity firm The Patriarch Organization. "The smart way to go here is you license content. There's nothing of Time Warner's they couldn't license. Why do they need to own it? If they wanted to create their own content, there's a lot cheaper ways to create content than to buy Time Warner."

Netflix, for comparison, is expected to spend $6 billion on new shows in 2017 . The company spend $140 billion over the last five years in wireless infrastructure, so $6 billion will be a drop in the bucket, said Nail. But whether it will allocate money towards content over technology remains to be seen, he added.

"What does a telecom company know about creating content," Nail said. "As Time Warner gets swallowed into this bigger enterprise and has to fight for resources, will they be successful or not? They can very quickly fall behind."

It may have been much cheaper for AT&T to just hire top Hollywood talent to create shows and movies, Schiffer said. Time Warner's portfolio won't be exclusive to AT&T, so it will have to spend even more money to create original series. AT&T's move seem like a "death rattle" to find another another revenue stream, Schiffer said.

"I think AT&T is clueless," Schiffer said. "When has 1 + 1 equaled more when it comes to these content distribution mergers? One plus one is not three."

More From CNBC

• Top News and Analysis
  

• Latest News Video
  

• Personal Finance