AT&T-Discovery Announce Merger That Will Radically Reshape Media Landscape

AT&T and Discovery have officially announced a merger that will once again reshape the media landscape. The two companies will be combining their media assets, WarnerMedia and Discovery, to create a new streaming-centric media company. In the deal, AT&T will receive $43 billion cash and debt securities, and WarnerMedia will be spun off and combined with Discovery, in an all-stock move referred to as a Reverse Morris transaction. This will join the WarnerMedia division—which includes Warner Bros., HBO, TNT, TBS, CNN, Cartoon Network and HBO Max—with Discovery’s portfolio—which includes Discovery, HGTV, TLC, ID, Food Network, OWN, the upcoming Magnolia Network and Discovery+. AT&T shareholders will receive stock representing 71% of the new company and Discovery shareholders will own 29% of the new company. The board of directors from both companies have approved the deal. Reports about the merger first surfaced yesterday. Discovery president and CEO David Zaslav will lead the new company, and executives from both companies will have key leadership roles. In a press call, AT&T CEO John Stankey said that Jason Kilar remains CEO of WarnerMedia, and it will be up to Zaslav to determine his leadership time for the new company. “This agreement unites two entertainment leaders with complementary content strengths and positions the new company to be one of the leading global direct-to-consumer streaming platforms. It will support the fantastic growth and international launch of HBO Max with Discovery’s global footprint and create efficiencies which can be re-invested in producing more great content to give consumers what they want,” said AT&T CEO John Stankey in a statement. “During my many conversations with John, we always come back to the same simple and powerful strategic principle: these assets are better and more valuable together. 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,” Zaslav said in a statement. The transaction is expected to close in mid-2022. The board will consist of 13 members: seven initially appointed by AT&T and six appointed by Discovery, including Zaslav. The name for the new company will be unveiled later this week or next week, Zaslav told reporters Monday morning. There is little overlap between each company’s network portfolio: WarnerMedia has news, sports and scripted entertainment, while Discovery specializes in unscripted fare. As for whether HBO Max and Discovery+ will continue to operate separately or will be combined into a single streaming service, Zaslav said that will be determined at a later time. One WarnerMedia asset will not be included in the merger: AT&T will retain its advanced advertising unit, Xandr, Stankey told investors Monday morning. Both companies are still set to make presentations to marketers during upfronts week. Discovery will hold its event Tuesday morning, and WarnerMedia's event will be held Wednesday morning. AT&T's growing pains For AT&T, the move is a stunning admission of the company’s failure to nurture the company—then called Time Warner—that it spent $85 billion to buy in 2018, in an effort to combine its robust broadband (U-Verse), wireless (AT&T), satellite (DirecTV) and streaming live TV (DirecTV Now) offerings with Time Warner’s hefty film and TV properties. At the time, then AT&T chairman and CEO Randall Stephenson told his new employees, “You have my word that you will continue to have the creative freedom and resources to keep doing what you do best.” But instead, AT&T never seemed to get a handle on its new company, which it renamed WarnerMedia. It rolled out a major restructuring in March 2019, and then another last August, following the arrival of new WarnerMedia CEO Jason Kilar a year ago. Along the way, many of Time Warner’s top execs either left or were pushed out, including HBO CEO Richard Plepler, Turner president David Levy, WarnerMedia ad sales chief Donna Speciale and TNT/TBS/truTV president and HBO Max chief content officer Kevin Reilly. AT&T has already been shaking up its entertainment assets this year. In February, the company said it would spin off its traditional pay TV business, which includes the DirecTV, AT&T TV and U-Verse video services, into a separate company that will be jointly operated by AT&T and the private equity firm TPG. Just six years ago, AT&T paid a hefty $48.5 billion to acquire DirecTV; now, the new company’s estimated value is only $16.25 billion—just one-third of the DirecTV purchase price. The deal is the first major merger since Viacom and CBS recombined in December 2019. That had capped off a wild two-year period that also saw AT&T buy Time Warner, Discovery acquire Scripps Networks Interactive (for $14.6 billion), Disney snap up Fox (for $71.3 billion) and Comcast bought the remaining 61% stake in Sky (for $39 billion).