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AT&T is in talks with Discovery, Inc. to merge its media business with the sprawling television company, The Hollywood Reporter has confirmed.
Bloomberg, which was the first to report the news on Sunday, adds that the two media giants could unveil an agreement as early as this week.
Under the terms floated by Bloomberg, AT&T would spin off WarnerMedia into the newly combined company, creating a TV, film and streaming powerhouse. AT&T would contribute assets including WarnerMedia and HBO Max with Discovery’s reality television-heavy properties, such as the Discovery Channel, HGTV, TLC, Food Network, OWN and Animal Planet, among others.
Some on Wall Street have predicted further mega-deals, with much recent focus on a possible merger of Comcast’s NBCUniversal and WarnerMedia.
When reached by The Hollywood Reporter, a Discovery representative declined comment. “We don’t comment on rumor and speculation,” said an AT&T representative.
If such a deal were to be completed, it would be the largest media/entertainment merger since Viacom and CBS re-merged to create ViacomCBS in December 2019. It would also continue a trend of consolidation in the industry, after The Walt Disney Co. acquired the entertainment assets of 21st Century Fox in 2019, and after Discovery acquired Scripps Networks Interactive for $14.6 billion in 2018. Those deals were all about bulking up to take on upstart streaming services like Netflix.
Discovery’s management team, led by CEO David Zaslav, has often touted the firm’s focus on lifestyle and other non-fiction content, arguing that this allows it to avoid a crowded space in which all Hollywood giants are competing for streaming subscribers. However, media mogul John Malone, who controls a voting stake of more than 20 percent in Discovery, has in the past talked about how “free radicals,” or medium- to smaller-sized media companies, should merge to boost their scale.
A Discovery deal would also mark a stark change in strategy for AT&T, which acquired the former Time Warner assets for $85 billion in 2018. AT&T, as it happened, also recently unwound another major acquisition earlier this year, when it spun off its pay-TV business (including DirecTV) in a deal with private equity firm TPG. AT&T acquired DirecTV for $67 billion (inclusive of debt) in 2015, and the business was valued at just over $16 billion this year.
AT&T has been seeking to offload many of its assets as it manages its high debt load, which currently totals nearly $180 billion.
The merger, much like the Disney-Fox acquisition, would come as the media and entertainment business is in transition, as companies built around distributing programming through pay-television, multiple paid windows and theatrical distribution shift to sell their wares directly to consumers, a change precipitated by the rapid rise of Netflix.
Disney has moved all-in on that strategy, reorganizing the entire company around streaming last year.
Both WarnerMedia, led by Jason Kilar, and Discovery, led by David Zaslav, have rebooted their respective companies’ streaming efforts in the past year through HBO Max and Discovery+ respectively. It remains unclear what such a merger would mean for those services, though merging them to create a larger competitor to Netflix seems likely.
It is also unclear what roles Zaslav or Kilar would have in the new company.
LightShedPartners analyst Richard Greenfield earlier this year called for a merger of NBCUniversal and WarnerMedia, arguing: “In today’s media world, we believe focused scale is the only way to be both large enough and nimble enough to embrace technological change and carve a meaningful space in a tech platform-dominated landscape.”
MoffettNathanson’s Michael Nathanson has similarly spoken of such a “logical combination” as a way “to give the combined companies the needed scale to compete with Disney and Netflix.”
A Comcast representative declined to comment.
One thing Wall Street analysts were discussing on Sunday was what WarnerMedia assets would be included in a deal. MoffettNathanson analyst Craig Moffett told THR that it was “not entirely clear whether it is all assets or just the cable networks.”
If a deal was focused on the AT&T cable networks, “then it’s simply a way for AT&T to shed another bundle of underperforming assets,” the analyst said. “Discovery would stand to gain from Turner’s programming, CNN, and AT&T would then be able to focus just on HBO Max, which is clearly the crown jewel of WarnerMedia at this point.”
If all of WarnerMedia is part of a deal, “then it’s all about the streaming platforms,” Moffett said. “That would make this a deal about streaming scale, globally as well as domestically. Inside the U.S., WarnerMedia would bring Discovery content scale, particularly in scripted entertainment, but also in news with CNN, which would fit Discovery’s model well. Discovery would bring WarnerMedia distribution scale, particularly outside of the U.S. To succeed long term in streaming, they’ll need both.”
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