Changing Landscape in Media as Hollywood Giants Lose Ground to New Streaming Players

AT&T Inc. and Discovery Inc. reached a deal to combine their media assets into a new, publicly-traded company (name yet to be revealed).

The new business will be led by current Discovery Chief Executive David Zaslav.  The deal will put Warner Media’s subsidiaries – including Warner Bros. Pictures (Batman films), HBO Max (Game of Thrones), DC Films, and networks like Cartoon Network, CNN and TBS – under the same umbrella as Discovery brands like HGTV, Animal Planet, Food Network and Discovery Channel. The deal will close in mid-2022.

In an effort to ramp up efforts in streaming media, this deal will position the new company to become one of the leading global direct-to-consumer streaming platforms. This deal comes as a blow to streaming powerhouses like Netflix, Disney+, Apple TV and Amazon Prime Video.

When the deal is finalized AT&T will receive $43 billion and AT&T’s shareholders will take stock representing 71% of the new company, with owners of Discovery holding 29%. AT&T will, however, be no longer the parent company.

The Big Question

Why will Discovery CEO Jaslov lead the media giant even though they are only a 29% stakeholder in the new company?

Reason Behind The Acquisition

1. AT&T is $150-180 billion in debt.

John Stankey predecessor Randall Stephenson has made questionable acquisition decisions during his tenure as CEO. When he had taken over the company in 2007 the company’s stock price was $39.47. Today, in May 2020, it trades under $29.55. His tenure is notable for its huge and aggressive acquisitions but the deals themselves have tarnished his CEO stint.

His first wasted attempt to buy wireless provider T-Mobile in 2011 for $39 billion costs AT&T about $6 billion in cash and spectrum as a breakup fee as regulators stopped AT&T.

The second biggest blow was to buy DirectTV for $48.5 billion in 2015 and lastly, the final blow was by purchasing Time Warner (later named Warner media) for $85 billion closed in 2018. In a recent update, AT&T executives were paid $9m for this deal.  

This deal will eventually pay off part of the debt still leaving $100 billion in their lap. However, the debt could only be paid off if the 71% stake could be sold to a market player (probably Comcast). Only time will tell AT&T is looking for a buyer or not.

2. Emerge as a leading streaming platform

Each year cable tv is experiencing a drop in their ratings as millions choose to drop from cable tv. The decline of cable is not a new story.

“I think it’s 10 years, and there’ll be a total change of the guard. At some point, people will make that decision of ‘I can get everything I want [in streaming]. I no longer need to have 180 channels that I only watch 12 of,” said former Direct TV/AT&T Audience Network Programming Chief Chris Long, who’s now a producer to Variety.

Besides,

1. Discovery has channels in 220 countries according to a news portal. So that suggests a huge audience around the globe. 2. Warner Media had net sales of $30.4 billion in 2020, and Discovery $10.7billion.

Netflix’s rise has forced the rivals to change the game-plan aggressively. Take the example of “Friends” as a show that traveled from NBC, to broadcast, to Netflix, and now to HBO Max.

Things to look out for:

1. Will AT&T extract itself from this equation? 2. Will Jason Kilar, CEO of Warner Media, remain? 3. How many more such deals we are ready to witness?