AT&T, in abrupt turn, will shed media business in deal with Discovery

AT&T, which sells wireless phone and broadband services, has already made moves to turn itself into a media powerhouse, buying satellite TV provider DirecTV last year for $48.5 billion. Reuters File photo
AT&T, the wireless carrier that thundered its way into the media business three years ago with grand visions of streaming video on millions of its customers’ cellphones, has agreed to spin off its WarnerMedia group and merge it with its rival programmer Discovery Inc., the companies announced Monday.

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

The company will join together two of the largest media businesses in the country. AT&T’s WarnerMedia group includes the sports-heavy cable networks TNT and TBS. In addition to Discovery’s strong lineup of reality-based cable channels, the company has a large international sports business.

The merger would also be a significant about-face for AT&T, a telecommunications giant better known for servicing fiber lines and cell towers than producing entertainment and courting Hollywood. Industry experts questioned AT&T’s daring purchase of Time Warner at a time when cord-cutting was only accelerating. The spinoff indicates a failed acquisition strategy.

WarnerMedia is run by Jason Kilar, 50, one of the early pioneers of streaming and the first CEO of Hulu. Discovery has been led for 14 years by David Zaslav, 60, who helped it grow into a reality behemoth. Zaslav will lead the new business.

The companies said they expected the deal, which must be approved by Discovery shareholders and regulators, to be finalised in the middle of next year.

The new company will be bigger than Netflix or NBCUniversal. Together, WarnerMedia and Discovery generated more than $41 billion in sales last year, with an operating profit topping $10 billion. Such a sum would have put the new company ahead of Netflix and NBCUniversal and behind the Walt Disney Co. as the second-largest media company in the United States.

To compete with Netflix and Disney, both AT&T and Discovery have invested heavily in streaming. AT&T has spent billions on building HBO Max, which now has about 20 million customers. Discovery has 15 million global streaming subscribers, most of them for its Discovery+ app.

John Stankey, the CEO of AT&T, has looked at its media business as a way to keep its phone customers from switching to other companies. AT&T Wireless subscribers get discounts and free access to HBO Max. A deal with Discovery could include stipulations that customers would maintain those benefits.

Before he took over as CEO last year, Stankey was the company’s chief mergers strategist. But his track record has been spotty. In addition to planning AT&T’s purchase of Time Warner, he was behind the company’s $48 billion acquisition of the satellite operator DirecTV in 2015. The service has been bleeding customers for years; in February, AT&T sold part of the business to the private equity firm TPG for about $16 billion, a third of what it originally paid.

For Discovery, the WarnerMedia deal could finally give Zaslav the size and scale he has long sought. A swashbuckling executive who can recall ratings figures off the top of his head, Zaslav represents the last of the old guard in media, a hobnobbing mogul known for hosting lavish get-togethers at his house in the Hamptons in New York.

The new company would create a new kind of media behemoth, one that is still living off the fat profits of old-school cable, while spending those profits (and more) on streaming.

Even with increased competition, HBO remains a standout in television, and last year, once again, captured more Emmys than any other network, studio or platform, including Netflix. It has several hit shows, including “Succession,” “Curb Your Enthusiasm,” “Barry” 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.”

 

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