Discovery and WarnerMedia have closed their $ 43 billion merger, creating a top-scale media player and streaming competitor, and ending an unfortunate campaign in AT & T’s entertainment.
The combination will bring together unequal resources such as HBO, CNN and nearly 100-year-old Warner Bros. Film Studios Food Network, HGTV and 90 day engagement. This is the most fruitful media integration since Disney bought most of the 21st Century Fox in 2019, and it leaves the kind of question that prompted that mega-deal to come and go as an executive. (For now, the Discovery Guard is headed primarily by CEO David Jaslav. Toby Emmerich, Casey Blaise and Channing Dangi, head of Warner Bros. Pictures, HBO and Warner Bros. TV, respectively, received the vote of confidence.)
Under the all-stock, reverse Morris Trust transaction, AT&T is receiving a combination of cash, debt securities and some of WarnerMedia’s debt. The shareholders of the telecom giant received 71% of the stock representing the new company. Discovery shareholders own 29% of the new company. Despite being a minority stakeholder, Discovery has operational control. The company’s longtime CEO, David Jaslav, has largely consolidated a management team largely from his alma mater positions, many of whom were at the core of Jaslav’s management at NBC in the 1990s and 2000s.
Warner Bros. Discovery stocks are expected to begin full trading on Monday, although they have already begun to change hands on a “when issued” basis. The stock ended the day 6% higher at $ 24.43.
The deal makes it the largest pure-game entertainment entity in existence, although its initial stock market value is far from that of Disney, Comcast and Netflix. The company has an estimated combined revenue of .8 49.8 million in 2022 and an estimated $ 52 billion in 2023. That’s within Disney’s revenue range, minus its theme parks and resorts, and is significantly higher than NBCUniversal’s 2021 level.
The nature of the deal, which did not involve a US broadcast network or multiple movie studios, enabled it to pass easily through a 10-month regulatory process. There was never any serious rumbling of opposition to the combination, although it did create a cable network callus, where TNT, TBS, CNN, Cartoon Network and others joined the discovery portfolio of 19 networks.
Jaslav, who secretly negotiated the deal a year ago with AT&T chief John Stankey and several top lieutenants from both companies, has reached new heights. Longtime fixtures in New York, where he grew up, Jaslav promises to be more visible and active in Hollywood. He bought the famous house owned by Paramount boss Robert Evans. Very few people expect that the enterprising and claimant Jaslav Evans will sit on the bed reading script. He will be tasked with merging two different, legacy-media organizations and proving the core thesis of the agreement – the overall content that will lead to long-term value.
For AT&T, the finishing touches on a costly, nearly seven-year adventure in entertainment. When DirecTV was acquired in 2015, the telecom giant offered ওয়ার 85.4 million to Time Warner shortly before Donald Trump’s 2016 election. After sealing the deal after a long, extraordinary no-confidence contest by Trump-appointed regulators in the Department of Homeland Security, the company rebranded it as WarnerMedia and launched several waves of restructuring. HBO, Warner Bros., Turner Broadcasting, and CNN began to be woven together, and many experienced Axis companies left, with the former individual silos famously resisting Synergy’s efforts.
Streaming WarnerMedia has accelerated the merger of departments and will also fuel many of the new company’s strategic initiatives. The HBO Max, which was launched in May 2020, will eventually be integrated into a single service, although the process will take several months due to a number of technical and logical reasons. By the end of 2021, combined with the traditional HBO, HBO Max had 73.8 million worldwide customers. Discovery reported 22 million paid streaming subscribers, although it did not break the number for Discovery + compared to other specialized services it operated.
With legacy businesses still blocking billions of dollars in free cash flow, Warner Bros. is unlikely to take long-term steps in Discovery streaming. Like its traditional peers, it notes the recent coolness of Wall Street to move content online. Although religion has had that gain in 2019 and 2020 as companies have finally challenged Netflix’s long-standing dominance, the question now is more about profitability. Reaching the threshold of a particular customer is only part of the story, the more pertinent question is whether that subscription revenue can be a truly profitable business building block.
The makeup of executives who will oversee pushing streaming and other areas remains a live question. Discovery promises খরচ 3 billion in cost savings on Wall Street, a much higher number than previous mega-deals that have resulted in thousands of layoffs. While most de-layering is predicted to come in back-office and administrative functions, a pattern of mature talent in marketing, distribution, advertising, business matters and many other areas will also loosen.
Scripted film and TV projects are also relatively unknown waters in addition to OWN for Jaslav and the Discovery Team. Not only did Jaslav lead Unscripted (after unsuccessful attempts to gain prestige to scripted shows in the mid-2010s) to Discovery to Unscripted, he also lashed out at companies in the scripted space. Ever since he joined hands with Stankey, he has been rapsodizing Warner Bros. ‘s scripted franchise (Warner Bros. Discovery initial logo). Maltese Falcon Tagline, “Dreams are made of that thing.”)
Not sure if the new stock will become a Wall Street favorite. Content-centric issues like Paramount Global or Lionsgate have slowed down of late. Shares of Discovery and AT&T fell significantly below their levels before the deal was offered.
Michael Morris, an analyst at Guggenheim Partners, has a “neutral” rating on Discovery. On the eve of the merger, in a note addressed to clients, Morris described “attractive long-term prospects for the entity.” Maintaining a counter-balance, however, he writes that “after limited insight into the go-to-market strategy and distribution, there is potential selling pressure from key AT&T shareholders.”
Craig Moffett, an analyst at Moffat Nathanson and a vocal critic of AT&T’s promotion of entertainment, wrote a kind of death story for Time Warner and the DirectTV deal. “And so a long and ugly chapter in the floor history of a great American company has come to an end,” he wrote in a note addressed to clients this week. “Investors have given a great thumbs down to the media for AT&T’s adventure and that’s exactly what happened. It was born of a flawed strategy and was poorly implemented. “
To be fair, he went on to say, “The acquisition of Time Warner was less than the worst of the two deals between AT&T, known as the ‘modern media company’ for short. The DirecTV deal was undoubtedly bad. Taken together, the two agreements have badly damaged AT&T, and their impact cannot be reversed by simply spinning. “