AT&T's WarnerMedia merges with Discovery to create a new media and content giant

By Emmanuel Legrand

A new content giant was born with the $43 billion merger of AT&T’s WarnerMedia with Discovery Communications. The merged company will have projected revenues of $52bn in 2023 and adjusted EBITDA of $14bn.

  The new standalone company, which has yet to be named, will combine AT&T's Warner Bros. Studio, CNN, HBO, HBO Max, Cartoon Network, TBS, TNT, among other assets, with Discovery's HGTV, Food Network, TLC, and Animal Planet operations.

  It will control over 200,000 hours of programming and more than 100 brands in the cinema, streaming, publishing, music, news and sports industries, and will invest in the production of content some $20bn a year.

Deep creative assets

  "We are now in a world where relevance and future success will be tied to greater scale and growth globally," said AT&T CEO John Stankey in a memo to WarnerMedia staff, seen by CNN. "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."

  The merger is an all-stock transaction. Once completed, AT&T will be controlling 71% of the shares and Discovery 29%, and the new company's 13-member board of directors will include seven executives appointed by AT&T, including the Chair of the board, and six appointed by Discovery. Discovery CEO David Zaslav will be in charge of the new conglomerate.

  “It is super-exciting to combine such historic brands, world-class journalism, and iconic franchises under one roof and unlock so much value and opportunity,” said Zaslav. “With a library of cherished IP, dynamite management teams, and global expertise in every market in the world, we believe everyone wins.”  

[Analysis:

Following Verizon's recent divestment from Yahoo and AOL, the decision from AT&T to dispose of WarnerMedia just three years after its acquisition and a hard-fought battle against the Department of Justice's antitrust division that was objecting to the deal, further highlights the shift from a fully integrated strategy that combined networks and content, to a new vision where content is separate from the means to distribute it.

  In fact these are two different worlds. One is of long-term planning and investment in infrastructure to build cable, satellite or wireless networks, and the other is about harnessing talent to produce compelling content for immediate consumption. The two require different mindsets and executives running telecom companies have rarely been at ease with the unpredictability of producing creative content.

  Some observers noted that AT&T John Stankey seemed to have a huge weight lifted from his shoulders on the day the news of the merger was announced. When you are fighting for eyeballs and dollars with the likes of Disney, Amazon and Netflix, you have to be fully committed. From day one of the Warner acquisition, AT&T seemed to be unable to really figure out why it had done the deal, other than talking about synergies between content and networks (with 5G deployment in the background).

  AT&T can now be back to being mostly a telecom company, which was very clear in the following comment from Stankey: “For AT&T shareholders, this is an opportunity to unlock value and be one of the best-capitalised broadband companies, focused on investing in 5G and fiber to meet substantial, long-term demand for connectivity.”

  The new entity, which has some prized brands, will now have to focus on offering the best content possible to be relevant in a world where Disney and Netflix are available around the world with some seriously compelling content.

  The big battle for content just got a little more competitive.

Emmanuel Legrand]