AT&T’s WarnerMedia Group to Merge With Discovery

It’s as if Logan Roy, the fictional patriarch of the Waystar Royco media empire in HBO’s popular series “Succession,” had the deal himself: AT&T took the media business into their own hands and decided to outsource it to a new company, that will merge with Discovery Inc.

The transaction will combine HBO, Warner Bros. Studios, CNN, TNT, TBS and several other cable networks with a variety of reality-based cable channels from Discovery including Oprah Winfrey’s OWN, HGTV, the Food Network and Animal Planet.

However, it raises numerous questions about what this will mean for popular shows and streaming platforms, whether entertainment bills go up or down, or what will happen to the WarnerMedia and Discovery staff.

WarnerMedia is known for producing some of the biggest theater and television hits in the business.

HBO has recorded more Emmys in the past year than any other network, studio, or platform. His hit shows include “Succession”, “Curb Your Enthusiasm” and “Last Week Tonight With John Oliver”. It also has a huge library that includes The Sopranos, Game of Thrones, and Sex and the City.

The television studio Warner Bros. has produced for its parent company WarnerMedia as well as other successful shows with series such as “Ted Lasso” (Apple TV +), “Riverdale” (CW) and “The Bachelor” (ABC), as well as the Warner The Film Studio Bros. recently released films such as Godzilla vs. Kong and Mortal Kombat. It also owns DC Comics and has invested heavily in creating superhero films to keep up with Disney’s Marvel franchise.

Discovery’s most popular shows include 90 Day Fianc├ę, Flip or Flop and Property Brothers. The company also owns Oprah Winfrey’s cable network OWN and has commissioned a special show with Ms. Winfrey just for the Discovery + platform.

The big endgame in the media today is streaming. Netflix, the industry leader, has over 200 million subscribers, and everyone else is way behind.

Both WarnerMedia and Discovery have invested heavily in streaming. WarnerMedia has spent billions building HBO Max, which, along with the HBO cable network, has around 44 million customers. Discovery has 15 million streaming subscribers worldwide, most of them for the Discovery + app.

Companies plan to invest more in both services to increase those numbers significantly. David Zaslav, the chief executive of Discovery, who will run the new business, said Monday he envisioned hundreds of millions of subscribers around the world, but that’s going to be tough as Netflix and Disney are investing in new shows of their own to keep one get a grip on the market.

It’s likely that the new company will take a page out of Disney’s playbook and offer a bundle of streaming services at a discount. WarnerMedia also plans to launch an ad-supported streaming service later this year.

But streaming is still a money lost game, and traditional cable networks continue to make billions in profits, even as fewer people tune in every day.

The new company expects sales of $ 52 billion and pre-tax profits of $ 14 billion through 2023. Streaming will be a big driver of this growth and is expected to generate $ 15 billion in revenue.

The company will also be burdened with $ 58 billion in debt. The combined company could spend up to $ 20 billion a year on content development, but it’s unclear how much that money will be spent on streaming versus traditional cable.

In business today

Updated

May 17, 2021, 12:48 p.m. ET

“Our # 1 priority is to expand our reach around the world,” Zaslav said in an interview. But he added that the traditional cable business is still very lucrative.

This is what a Wall Street analyst suggested on Monday morning.

“One wonders if there is more of the story to come,” wrote Craig Moffett, co-founder of Wall Street research firm MoffettNathanson, speculating whether Comcast’s NBCUniversal might be an interested candidate for HBO. Comcast is unlikely to play a piece for CNN or the Warner Bros. studio, he wrote, “but one could argue that HBO is a must.”

AT&T CEO John Stankey downplayed the idea that HBO could be ripped away from Discovery if an interested buyer suddenly showed up.

“When you step back and think about what holds this transaction together, it’s not just a part or two,” he said in an interview. “It’s the whole thing together.”

Mr. Stankey added, “To mix things up and bring things together and think about ripping things out and moving an asset elsewhere, your overall financial equation, a value proposition to the marketplace, kind of falls apart.”

Mr. Zaslav, a seasoned media manager who has spent most of his career at NBC, will lead the new business.

Mr. Zaslav represents the last of the old guard in the media, a hobby mogul known for holding lavish gatherings at his home in the Hamptons.

Indeed, Mr. Zaslav was hoping to start business talks with Mr. Stankey at the Pebble Beach Pro-Am golf tournament in February. The pandemic kept her at home. Instead, Mr. Zaslav emailed Mr. Stankey.

“Are you there?” Mr. Zaslav wrote. “I have an idea.” He signed off with several emojis and one ­čśÄ.

Few employees from both companies knew that a deal was being discussed, which could also mean that both companies will be restructured once the deal is closed.

Jason Kilar, who was hired to lead AT & T’s media group just last year, is most likely on his way out. He was kept in the dark about the deal until a few days ago and he has hired a legal team to negotiate his departure, according to two people who have been briefed on the matter.

However, this could mean the survey of other executives within WarnerMedia. On Monday, Mr. Zaslav praised Toby Emmerich, director of the film department, Casey Bloys, who runs HBO, and Jeff Zucker, who runs CNN. Mr. Zucker and Mr. Zaslav are also long-time golf buddies.

When asked about his plan for the management team, Mr. Zaslav said he would not favor Discovery executives.

“From a philosophical point of view, we don’t know any better,” he said. “There’s a reason WarnerMedia is where it is today.”

The companies anticipate the deal will close by mid-next year, and they anticipate annual cost savings of $ 3 billion. That usually means layoffs are coming.

WarnerMedia went through several rounds of profound downsizing after AT&T bought the company in 2018 when Mr. Stankey, who headed the unit for a while, cut operations. Executives and managers were laid off when he brought HBO, Warner Bros., CNN and the other cable networks under a single management team.

When Mr. Kilar came on board last year, he kept cutting. Over 2,000 employees were laid off.

The $ 3 billion cost savings saved inevitably means more layoffs – both at WarnerMedia and Discovery. Mr. Zaslav said that there is “a talent pool” at WarnerMedia, highlighting the fact that Discovery does not do scripted shows.

Comments are closed.