Plans to merge assets with WarnerMedia to spinoff to own company
Here we go again.
Sunday morning, Bloomberg published a report stating Discovery Communications and AT&T’s WarnerMedia would be merging assets, marrying Bugs Bunny and Friends with Oprah Winfrey and Chip and Joanna Gaines.
The news was made official Monday, with AT&T spinning off those assets into a new, yet-to-be-named company. WarnerMedia owns cable networks HBO, TNT, TBS, TruTV, and CNN among others; and the Warner Bros. film and TV studio. Discovery owns Discovery Channel, Animal Planet, OWN, Food Network, the soon-to-launch Magnolia Network, and TLC, among others. The transaction is worth $43 billion with AT&T shareholders owning 71 percent and Discovery owning 29 percent.
But the real driver behind this merger are their respective streaming services, with WarnerMedia’s HBO Max and Discovery’s recently-launched Discovery Plus.
Discovery CEO David Zaslav is assuming the same role in the new company. Warner CEO Jason Kilar will guide through the transition, but likely depart. The deal is expected to close in the middle of next year.
Discovery is one of the last few independents left in media. The Discovery Channel and the company bearing the name launched in 1985, and grew by acquiring The Learning Channel (TLC) in 1991, launching Animal Planet and Science Channel in 1996, and acquiring Scripps Networks Interactive in 2018, after spinning off from former parent Scripps.
The move by AT&T to spin-off their entertainment assets is a retreat for the Dallas-based conglomerate. Announced in 2016, AT&T bought the then-Time Warner in 2018 for $85 billion, but the two cultures never really meshed well. For example, numerous content creators who are with Warner weren’t happy with the way AT&T ran the studio, especially when it came to the way movies were distributed – Kilar was roasted by producer- director Christopher Nolan for releasing the 2021 slate of movies on HBO Max and in theaters simultaneously, despite the pandemic. Many in Hollywood are happy AT&T are jubilant about their exit from Tinseltown.
The companies’ portfolios are starkly different – while WarnerMedia has a ton of scripted programming, a massive TV and film library and a huge movie studio, Discovery has mainly documentaries and reality programming – some of it quite cheesy (Sex Sent Me to the ER.) Discovery has sold reruns of its fare to broadcast diginets such as Court TV Mysteries and True Crime Network (formerly Justice.)
It’s too early to tell if the streamers they own would combine or stay separate. Both have their shortcomings – Discovery Plus only has fifteen million subscribers globally, far behind HBO Max but the latter has been deemed a disappointment as both lag way behind Netflix who has 200 million subscribers globally. One proposal is to add CNN and Turner Sports’ content to Discovery Plus once the merger is finalized. Of course, the $4.99 price point for the streaming service would likely increase.
Of course, there’s the usual regulatory hurdles with this type of deal as it must pass the Department of Justice’s review. But one agency who won’t is the FCC, as neither Warner Media or Discovery has any broadcast television licenses. The merger would generate annual revenue of $50 billion in revenue yearly and $14 billion in taxes and other liability-related issues. Warner-Discovery would own 23 cable channels as the DOJ could force them to spinoff a few due to anti-trust concerns.
With WarnerMedia and DirecTV already spunoff, AT&T can now focus on rolling out 5G to phones and other devices. The original AT&T – as a landline phone company – was broken up in 1984 and split into five baby bells, leaving them with only long-distance phone service and a few other businesses. This version of AT&T bought TCI Cable in 1999, whose then-chairman John Malone – is currently chairman of Discovery. Renamed AT&T Broadband, they merged with Comcast in 2002 and wiped out the AT&T name.
The current incarnation of AT&T is basically the former Southwestern Bell, or SBC, who acquired Ameritech and Pac Bell and took the dormant AT&T name in 2005.
So… what’s next?
There is no doubt cord-cutting and streaming is driving this deal – something this space pointed out in 2016 when AT&T and TimeWarner first announced their merger. But there is a sense the television ecosystem is changing. Investors and media financial analysts wanted NBCUniversal/Comcast to swoop in and buy WarnerMedia, but the opportunity is now gone.
One possibility some publications hinted at is NBCUniversal merging with ViacomCBS in the future. Of course, numerous spin-offs have to take place for this as the Justice Department won’t let this happen with laws on the books probating the merger of the major broadcast networks. However, if a Republican administration retakes the White House in 2024 and both houses of Congress, then anything can happen as they could change any anti-trust rules and raise the station ownership cap past 39 percent. On the other hand, GOP politicians have an intense dislike for NBC’s and CBS’ news divisions, and that could be a potential roadblock.
But perhaps the biggest takeaway from this is the potential loss of jobs from this merger – something we’ve seen time and time again as media consolidation continues unabated in the race to build scale against global tech giants Netflix and Amazon. With financial analysts only caring about what incentives are in it for shareholders, you start to wonder why anyone wants to work in media these days as the industry is no longer appealing to anyone looking to build a stable career.