AT & T’s rivals WarnerMedia and Discovery to create a huge global streaming rivalry

AT&T has agreed to meet with rival WarnerMedia and combine it into a multi-billion dollar deal to create a media empire with great programming to compete with Disney and Netflix around the world. streaming race.

The move will create the world’s second-largest media company based on Disney’s subsequent revenue. AT&T has paid $ 85.4 billion for the owner of CNN, HBO and Warner Bros. in just three years, and reflects the pace of change in traditional U.S. media groups. trying to reinvent themselves as a streaming service.

The proposed link will bring together one of Hollywood’s most prized portfolios – including Warner Bros. film and television studios, the HBO network and CNN’s cable channel portfolio – “Real life” output Discovery, as its brands are a means of renovating sports and wildlife and homes.

David Zaslav, longtime CEO of Discovery, will lead the combined team, which will be 71 percent owned by AT&T. Jason Kilar, who led the executive last year to accelerate WarnerMedia switch to streaming with HBO Max, was not mentioned in the merge file.

The new combined company will have a company value of about $ 132 billion, including $ 56 billion in debt. The two companies said they expected about $ 3 billion in annual synergies, and planned to invest in content and digital innovation.

The transaction represents a modest retirement for AT&T, which in one bet created one of America’s largest corporate debt piles to become the largest company in the world that is vertically integrated and distributed. “This should put an end to the debate over synergies between content and distribution,” said Jonathan Chaplin, an analyst at New Street Research, who said the deal is “a complete capitulation”.

Spin-off John Stankey, who took over as CEO the previous year, is the latest in a series of sentimental deals to dismantle his predecessor’s expansionist legacy and focus the company on his core business. This includes selling a 30 percent stake this year on DirecTV the private equity group TPG, an agreement that valued the sick TV business at $ 16.25 million, roughly a third of what AT&T paid six years ago.

The push to link Discovery is a fast-paced race between the world’s largest technology and media companies to reach out to Netflix and own a piece of the future of entertainment. In just the last 18 months, Disney, Apple, WarnerMedia, Comcast, Discovery and others have launched streaming platforms with global ambitions.

Before announcing the deal, Citi analyst Jason Bazinet said he could have imagined that “several other potential plaintiffs could join Discovery” or compete with WarnerMedia. “We will not rule out participating in Comcast, Disney or ViacomCBS,” he wrote.

AT&T and Discovery introduced significant fees at the end of the deal, agreeing they would pay $ 720 million or $ 1.8 million if the deal ended.

Discovery and WarnerMedia generated a combined revenue of $ 41 billion in 2020, which compares to a turnover of $ 65 billion worldwide, the world’s largest media group.

Discovery’s catalog of true low-cost programming, which holds up to 80 brands in more than 200 networks and 80 countries, may be a valuable addition to WarnerMedia’s library of shows and movies. Meanwhile, WarnerMedia’s economic size and the quality of its catalog will make Discovery one of the top four streaming services in the world.

While the two companies bring additional content and geographic footprint, the merger will require a full integration process, wasting efforts to build and market separate streaming services. In April, Discovery reported that its streaming business reached 15 million subscribers, and HBO Max registered nearly 3 million subscribers in the first quarter, reaching 9.7 million subscribers at the end of March.

However, the company is struggling to keep pace with much larger rivals: Netflix has 208 million subscribers worldwide, and Disney Plus has attracted 104 million subscribers since its launch a year and a half ago.

The transaction is a victory for Discovery’s two main shareholders, as Zaslav has advocated an aggressive pivot against streaming, which would either give the traditional TV team a future or make it more attractive to the courts. John Malone, a millionaire cable and media mogul, and Advance, the investment vehicle of the Newhouse family owned by Condé Nast, control about 45 percent of the voting power in Discovery.

Shares of AT&T rose 4.3 percent in early trading to $ 33.61, while Discovery rose 4.5 percent to $ 37.26.