The Warner Bros Discovery merger closes, altering the media landscape

Discovery and WarnerMedia concluded their long-awaited mega-partnership, created a top-tier media player and streaming competitor, and ended a catastrophic attack on AT&T entertainment.

The combination will combine several assets such as HBO, CNN and the nearly 100-year-old Warner Bros. Film Studio, with unwritten majorities such as Food Network, HGTV and 90 day boyfriend. This is the biggest media merger since Disney bought most of 21st Century Fox in 2019 and leaves questions this mega deal has raised about back and forth in the executive ranks.

(For now, Discovery’s bodyguard is largely run by CEO David Zaslav. Toby Emerich, Casey Blois and Channing Dunge, Warner Bros. Pictures, HBO, and Warner Bros. TV, respectively, have received votes of confidence.)

Warner Bros. Discovery shares are expected to begin trading in full Monday under the symbol “WBD”. It has already begun to change hands “when issued”. The shares ended the day up 6% at $ 24.43.

In full action, according to a Reverse Morris Trust transaction, AT&T receives $ 40.4 billion in cash, debt securities and some debt relief from WarnerMedia. Shareholders of the telecommunications giant now own 71% of the new company (approximately 1.7 billion shares), receiving a WBD of 0.241917 shares for every AT&T share they held at close. Discovery shareholders own 29% of the new company. In addition to the new WBD shares, AT&T shareholders continue to hold the same number of AT&T shares they owned prior to closing.

Although Discovery is a minority shareholder, it has operational control over WBD. The company’s longtime CEO, Zaslav, has assembled a management team made up mostly of his alma mater, many of which trace back to Zaslav’s work at NBC in the 1990s and 2000s.

The deal constitutes one of the largest pure gaming entertainment organizations, although its market value has been lower than that of Disney, Comcast and Netflix from the start. The company’s estimated combined revenue is $ 49.8 million in 2022 and $ 52 billion in 2023. This places it in Disney’s revenue bracket, excluding its theme parks and resorts, and significantly exceeds NBCUniversal’s 2021 total. .

In a statement closing the deal on Friday, Zaslav called “an exciting time not only for Warner Bros.” for Discovery, but also for our shareholders, our distributors, our advertisers, our creative partners, and most of all. , our customers. globally, ”said Zaslav. “With our collective resources and diversified business model, Warner Bros. Discovery offers the most diverse and comprehensive content portfolio across film, TV and broadcast.

“We are at the dawn of a new era of connectivity and today marks the beginning of a new era for AT&T,” said John Stanke, CEO of AT&T, who sent a congratulatory message to WarnerMedia staff earlier in the day. . He said he has continued to distance himself from film, TV and their own streaming platforms, with AT&T “investing at a record level in our growth sectors in fiber and 5G.”

The nature of the deal, which did not involve the US Broadcasting Network or multiple film studios, allowed it to go smoothly through a 10-month regulatory process and close earlier than expected. There has never been serious opposition to this combination, however it creates a behemoth on the cable side, with TNT, TBS, CNN, Cartoon Network and others joining Discovery’s portfolio of 19 networks. Previous horizontal mergers, such as CBS and Viacom, and Discovery’s latest large transaction with the acquisition of Scripps Networks Interactive, have also combined large cable assets.

Zaslav, who secretly struck a deal a year ago with Stanke and several senior lieutenants from both companies, has soared to new heights of popularity as a result of the deal. For a long time in New York, where he grew up, Zaslav promised to be more visible and active by managing properties in Hollywood and Burbank. He bought a house in Beverly Hills that was once owned by Paramount boss Robert Evans. Few expect a heavy Zaslav to read scripts in bed like Evans did. You’ll be tasked with uniting two different legacy media organizations and proving the deal’s original thesis: that merging a huge archive of content will lead to success in the broadcast age.

For AT&T, the closure marks the end of an expensive entertainment venture that lasted nearly seven years. Following the acquisition of DirecTV in 2015, the telecom giant offered Time Warner $ 85.4 million shortly before Donald Trump’s election in 2016. After finally finalizing the deal after a long and unusual antitrust challenge from part of Trump-appointed regulators in the Justice Department, the company replaced him with WarnerMedia and launched several waves of restructuring. HBO, Warner Bros., Turner Broadcasting, and CNN, formerly known for their synergistic endurance efforts, began to merge, and many experienced executives left the company.

Streaming has accelerated the merger of WarnerMedia’s divisions and will also strengthen many of the new company’s strategic moves. HBO Max, launched in May 2020, will eventually be merged into a single Discovery + service, although this process will take months, if not longer, for many technological and logistical reasons. (CNN +, released last month, is another candidate for consolidation.) By the end of 2021, HBO Max had 73.8 million global subscribers along with traditional HBO. Discovery had 22 million paying streaming subscribers, although Discovery +’s number was no higher than other niche services focused on food or golf.

While the legacy business still spends billions on free cash flow, Warner Bros. Discovery probably has no plans to move to streaming. Zaslav made headlines earlier this year, confirming that he was “not trying to win a cost war” via streaming. Like its traditional peers, the company took advantage of the recent Wall Street cooling to move content online. Although the push to stream on Al-In in 2019 and 2020 was successful as companies finally emerged to challenge longtime Netflix for dominance, the focus is now more on profitability. Hitting certain customer limits is only part of the story. A more pressing question is whether this subscriber revenue is truly a profitable component of the business.

The full composition of the executive teams overseeing the push for streaming and other areas remains a question that hasn’t been fully answered. Discovery has promised to save $ 3 billion on Wall Street, far more than previous mega deals that have led to thousands of layoffs. While most levels of deprivation should come from administrative and administrative roles, skilled talent in marketing, distribution, advertising, business, and many other fields will also be lost.

The scripts and TV projects are also relatively unknown to Zaslav and the Discovery team, with the exception of OWN. Zaslav not only pioneered unscripted Discovery (after failed attempts at prestigious script shows in mid-2010), but also ridiculed the corporate hijacking within the script space. When Discovery absorbed the script and its lifestyle nets, it used the metaphor of a kids’ soccer match, chasing the scripted ball with a bunch of kids, while on Discovery’s open field looking for an unsuccessful goal. written. It wasn’t until Stanke joined that he began to speculate on a franchise written at Warner Bros. (Warner Bros. Discovery was the original logo). Maltese falcon Motto, “Goods of which dreams are made”).

It is also unclear whether the new rally will become a Wall Street treasure. Content-oriented themes like Paramount Global or Lionsgate have been slow in recent times as investors debate whether or not they are eligible to move to the cloud of legacy fun. Shares of Discovery and AT&T also fell significantly above the pre-deal offering level, which was not the most favorable sign.

Michael Morris, analyst at Guggenheim Partners, maintained a “neutral” rating on Discovery shares. In a note to customers the day before the merger, Morris reiterated his assessment. He described the “potential long-term attractiveness to the merged entity”, but also cited “a limited view of market share strategies and potential post-distribution selling pressures from major AT&A shareholders. T “as reasons for the break.

Craig Moffett, MoffettNathanson analyst and voice critic for AT&T Entertainment Studies, has written an obituary of sorts for the Time Warner and DirecTV deals. “And so ended a long and bad chapter in the history of a great American company,” he wrote to customers this week in a post. “Investors have loudly confirmed the collapse of AT&T in the media, and rightly so. “It came from the wrong strategy and it went wrong.”

To be fair, he continued: “Of the two deals that created what AT&T briefly called the ‘modern media company’, the Time Warner acquisition was the least bad. The DirectTV deal was certainly worse. The two agreements made together have significantly reduced AT&T and their influence cannot be undone simply by twisting them.