May 17, 2021
AT&T announced today that it plans to combine WarnerMedia with Discovery. The deal, expected to to take effect in mid-2022 subject to regulatory approval, is a significant move for one of Hollywood’s largest studios to compete with top streaming players such as Netflix and Disney since it would combine the HBO Max and discovery+ streaming services. Under the agreement, WarnerMedia will be spun off and merged with Discovery as a new media company separate from AT&T, which could be valued as high as $150 billion. Discovery chief exec David Zaslav will run the combined business, which will be named shortly.
“AT&T owns CNN, HBO and Warner Bros. after it acquired Time Warner, since renamed to WarnerMedia,” reports CNBC. “Discovery’s channels include Animal Planet, TLC and the Discovery Channel.”
According to Zaslav, Discovery and Warner presently spend a combined $20 billion per year on content. Netflix announced it expects to invest at least $17 billion on content in 2021. However, Zaslav points out that the new company will offer news and sports, in addition to its entertainment properties, distinguishing itself from Netflix and Disney+.
The television and cable landscape continues to shift. The Wall Street Journal explains that, in the last 11 years, “about 35 million households have dropped their subscriptions to pay-TV channel packages or have skipped signing up in the first place, according to market research firm MoffettNathanson.”
“HBO and HBO Max reportedly have around 64 million subscribers worldwide,” CNBC notes. “Discovery said last month it had reached 15 million paying subscribers. By contrast, Netflix has around 208 million global subscribers, while Disney+ recently surpassed 100 million less than 1½ years after the streaming service launched.”
During the hour-long press briefing, it was not made clear whether services would be combined or bundled as separate products. “Zaslav said all options would be explored,” reports Deadline. “Disney has seen success by bundling Disney+, ESPN+ and Hulu in a single offering.”
“We’ll see over the next few years as we learn more about what consumers want and how they want it,” said Zaslav.
“A spin-off will help AT&T prioritize its broadband business and pay down its huge debt load,” suggests CNN. “Zaslav said Monday the new company will start with $55 billion in debt.”
“Prominent Wall Street analysts had been predicting, and in some cases encouraging, this type of move. Earlier this year AT&T struck a deal to carve out its satellite business DirecTV at a significant loss from the 2015 purchase price. And another telecom giant, Verizon, threw in the towel on its content efforts as well, agreeing to sell Yahoo and AOL for $5 billion.”
“AT&T said it would receive an aggregate amount of $43 billion in a combination of cash, debt and WarnerMedia’s retention of certain debt,” reports CNBC. “AT&T shareholders would receive stock representing 71 percent of the new company, while Discovery shareholders would own 29 percent.”
“We are now in a world where relevance and future success will be tied to greater scale and growth globally,” explained AT&T chief exec John Stankey in a memo to WarnerMedia staffers. “To be one of the best global media companies requires not only broad and deep creative assets, but an investor base and access to capital to make it happen. The decision to combine WarnerMedia with Discovery is rooted in this conclusion.”