AT&T proprietor of HBO and Warner Brothers studios, and Discovery home to lifestyle Television stations like HGTV and TLC, said on Monday they will consolidate their content assets to create a standalone global entertainment and media business.
Discovery CEO David Zaslav will lead the new company, which will traverse one of Hollywood’s most remarkable studios, including the Harry Potter and Batman franchises, news network CNN, sports programming and Discovery’s unscripted home, cooking and nature and science shows.
Shares in Discovery moved about 16% to $41.3 in premarket trade while AT&T stock rose about 4% to $33.67 after the declaration of the new company, which will be 71% owned by AT&T investors and 29% by Discovery investors.
AT&T said it will utilize the $43 billion proceeds from the tax-exempt side project of its media resources to pay down its more than $160 billion of debt.
The name of the new company will be announced a week from now, while other details, including the future part of WarnerMedia President Jason Kilar and how the combined assets and services will be managed is yet to be worked out, executives revealed in discussions with reporters.
Monday’s move denotes the loosening up of AT&T’s $108.7 billion acquisition of U.S. media conglomerate Time Warner in 2018, and highlights its acknowledgment that television viewership has moved to streaming, where scale is needed to assume any semblance of Netflix Inc and Walt Disney Co
“The chances in direct to buyer streaming are quickly advancing, and to keep pace and maintain a leadership role, a few things are required – global scale, access to capital, an expansive cluster of top notch content and industry best ability,” AT&T CEO John Stankey told a news briefing.
Consolidated the company will spend about $20 billion on content, more than Netflix’s $17 billion it will go through this year. Zaslav said he anticipated that the company should expand its programming interest later on.
“While further details have yet to arise, the proposed horizontal combination would make a global content behemoth joining Warner Media’s premier news and amusement resources with Discovery’s industry-driving reserve of non-scripted programming networks,” Keith Snyder at CFRA Research said.
The deal isn’t unexpected, Snyder added, after pressure on traditional pay-TV increased during the Covid pandemic as consumers binged watched streaming shows while stuck at home.
With Time Warner, AT&T’s former CEO Randall Stephenson tried to make a media and telecoms force to be reckoned with, combining content and distribution. The deal was challenged by former U.S. President Donald Trump’s antitrust regulators, yet won court endorsement in June 2018.
However it demonstrated an expensive methodology as AT&T at the same time tried to grow next generation wireless services, most as of late acquiring $14 billion to purchase wider spectrum
AT&T isn’t the main telecoms company to shed its media resources. On May 3, Verizon Communications Inc announced plans to dispose of its media business that include famous brands Yahoo and AOL for $5 billion, ending a costly and ineffective altercation in the media and advertising world.
AT&T and Discovery’s new company is projected to have 2023 income of about $52 billion and adjusted EBITDA of about $14 billion just as $3 billion in anticipated yearly expense from the collaborations.
The deal is expected to close in mid-2022, pending approval by Discovery shareholders and regulatory approvals.
The new company is required to see $3 billion in cost collaborations and has no designs to sell any resources.
