Digital Trend Alert

 

Powerhouse Merger of WarnerMedia and Discovery

The Powerhouse Merger of WarnerMedia and Discovery: the future is bright for streamers but the strategy must be right

Carol Ingley, President, Media Mogul Enterprises

Week of January 24, 2022 through Week of February 28, 2022

Digital Trends and Key Words:  Streaming Video, WarnerMedia, Discovery, HBO Max, discovery +, AT&T

     Corporate Reversal on May 17, 2021. It’s one of the “biggest corporate reversals in history,” declares a CNBC article published the day AT&T announced it would spin off WarnerMedia, one of its three segments. The spun-off company would then merge with Discovery, Inc. This announcement was made on May 17, 2021. On that date, the current AT&T CEO John Stankey overturned the 2018 decision of former AT&T CEO Randall Stephenson to purchase Time Warner. John Stankey at the time said words that are attention grabbing: “It’s time to unleash the media assets to go and seize a multi-hundred-billion-dollar opportunity.’”

     2018 Mindset. To be fair, in 2018, vertical integration or combining different “stages of production” spelled growth for AT&T or, at least, so it seemed. AT&T marched forward into new territory: content and content production. This put it ahead of its rivals, Verizon, Sprint and T-Mobile at the time who weren’t moving aggressively into content. Or so it seemed.

     Feeding into One Another. Buying a company whose users were filling  -- and would fill --AT&T’s broadband infrastructure with streaming video appeared to be a no-brainer. Video consumers would become AT&T subscribers. In turn, AT&T could give its customers special content deals, thus making it more valuable to be part of AT&T. The two segments would feed into one another. The integration just made sense. Not only that, it was exciting. Time Warner became a new segment at AT&T called WarnerMedia.

     Not Just Any Spin Off and Merge Deal. The corporate reversal – to take a relatively new acquisition and spin it off to merge WarnerMedia with Discovery to create Warner Bros. Discovery might be big news but it is a familiar story. There are just so many hours in the day. Even very large, very successful corporations have to face that. Other things that need to be faced, even by big, successful companies include whether they need to go with the proverbial saying, “stick to the knitting,” or alternatively, make decisions that will expand their expertise but also give them synergy to their core business. Clearly, AT&T, in 2018, saw synergy in its purchase of Time Warner.

     Creation of a Mega Content Corporation. The combination of WarnerMedia and Discovery to form Warner Bros Discovery brings two big streaming services under one roof: HBO Max and discovery +.

     From a bird’s eye view, this new content company will have one of the biggest content libraries in the world: 200,000 hours of branded programming. WarnerMedia brings HBO, DC, Warner Bros movies and Turner cable channels (TNT, TBS, CNN and other) to the deal. Discovery brings, of course, the Discovery channel, but also HGTV, Food Network, Animal Planet among others.

     Warner Bros. Discovery will be a media giant that can compete in the fast-growing, ever evolving streaming marketplace. Top rivals in streaming include Disney + and Netflix, but there are many players. It’s a brilliant move, because AT&T no longer has to manage content companies. It can focus on its traditional and well established expertise for its two remaining segments: Communications and Latin America.

     Yet its shareholders own 71% of this new company, with Discovery shareholders owning the other 29%. AT&T can manage its pipes while one of the companies that fills them is still majority owned by the shareholders of AT&T. Warner Bros Discovery will be Hollywood’s new powerhouse.

     The new powerhouse leader of this combined venture is David Zaslav. This is a strategic move: to put a content player in charge of a pure play content company. It makes sense. Strong strategic moves will continue to be important for this merged company.

     It looks like AT&T may have created a win/win/win  strategy. AT&T wins, but so does its soon to be former segment WarnerMedia and so does Discovery. Sometimes, you can have your cake and eat it, too.

     Still Regulatory Issues. There are still regulatory issues. The European Union has given its blessing. The IRS gave AT&T a favorable ruling for this planned merger. Both AT&T and Discovery anticipate any and all hurdles will be behind them by mid-2022.

     Future is Bright for the Winners of the Streaming Wars. This merger shows the incredible focus the entertainment industry has on streaming video. There’s a reason for that. Streaming video is a direct-to-consumer service and, as such, it gives these entertainment companies ownership of their customers. It also gives them the opportunity to grow a direct-to-consumer business that may well expand out from video into music and gaming, among many other choices. Indeed, this is already happening.

     As WarnerMedia and Discovery coming together are demonstrating, even for companies with strong content, joining forces may be critical over the long haul in this highly competitive arena.

   

     Carol Ingley is a marketing and finance consultant as well as a futurist and technologist. She is president of Media Mogul Enterprises.

 

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