AT&T agrees deal to combine WarnerMedia with Discovery

New company aims to ‘compete with world’s largest streamers’ such as Netflix and Disney+

The parent company of CNN, HBO and the Hollywood studio behind the Batman and Harry Potter franchises has struck a deal with Discovery to create a new global media superpower to take on streaming services Netflix and Disney+.

The US telecoms company AT&T, which acquired the media assets in an $85bn takeover of Time Warner three years ago, has agreed a spin-off of its media content division, now known as WarnerMedia, into a separate business in combination with Discovery.

The deal will create a content powerhouse spanning Warner Bros film and TV output including Friends and The Big Bang Theory, the HBO network behind hits including Game of Thrones and Succession, and Discovery’s stable of reality-TV shows in genres including nature, cooking and home improvement.

Under the deal, AT&T, which has a market value of $230bn, will receive $43bn in cash and debt securities and take a 71% stake in the new business. However, David Zaslav, the chief executive of Discovery, which has a market value of about $20bn and will control the remaining 29% stake, has been named chief executive of the business.

Zaslav said that the deal will create “a globally scaled growth company committed to a strong balance sheet that is better positioned to compete with the world’s largest streamers”.

AT&T and Discovery said that combining the two businesses will result in at least $3bn in annual cost synergies, including an expectation of significant job cuts, which will be used to increase investment in “content and digital innovation and to scale its global [streaming] business”.

In an email to all Discovery employees, Zaslav acknowledged that staff may have “questions about the synergy estimates”.

“Rest assured we will work diligently and conscientiously through that process and always communicate as transparently as possible,” he said. “This transaction will also create meaningful growth opportunities for many of our employees … as we get the opportunity to compete at a much bigger table.”

The business will have revenues of about $52bn and profits of $14bn. AT&T will appoint seven of its 13 board members, including the chairman.

The deal marks the latest round of consolidation in recent years as broadcasting, media and tech companies seek scale to compete globally in the streaming age.

In the past 18 months, a swathe of new streaming services have launched, with Disney+ racing to more than 100m subscribers, Netflix topping 200m and Amazon’s Prime Video estimated to have in excess of 200m regular users.

A deal between AT&T and Discovery would aim to create a new player with the content and scale to compete.

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HBO, which is owned by WarnerMedia, and its HBO Max streaming service have about 64m subscribers worldwide. Discovery, which owns networks including Animal Planet and the flagship Discovery Channel, reaches more than 88m US homes and has attracted 15m subscribers to its Discovery+ streaming service which launched in January.

AT&T’s strategic reversal will shift its focus to its core telecoms business and the rollout of 5G mobile networks and full-fibre broadband. AT&T recently spent $23bn in a US government auction of 5G spectrum.

In February, AT&T agreed to sell a majority stake in the satellite TV service DirecTV, which has been losing tens of millions of customers as viewers move to streaming, in a deal that valued the business at a quarter of the $48.5bn it was acquired for in 2015.

Contributor

Mark Sweney

The GuardianTramp

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