AT&T has chosen to spin-off WarnerMedia to merge with Discovery leading to the creation of the world’s second-largest media and entertainment company by revenue. Disney remains the world’s largest media company with a valuation of $132 billion. AT&T had entered the media landscape heavily back in 2016 after acquiring WarnerMedia, then TimeWarner, for $85.4 billion. The deal, though requiring a sign-off by regulators, will position the new company as one of the major players in media and content streaming globally.
AT&T has had to roll back its strong entry into the media and content landscape due to increased strain on its business. The company is massively in debt, owing creditors upwards of $180 billion. AT&T is also looking to invest heavily in 5G technology and this will necessitate a huge investment in infrastructure. Such huge commitments have led to investment pressure for AT&T leading to the WarnerMedia spin-off. 5G could revolutionize data, wi-fi connectivity, and streaming by increasing speeds 100 fold. As such, AT&T would lose more by losing out on 5G, than it stands to make maintaining the streaming side of its business. The merger with Discovery would ensure that the company remains in play as a shareholder with its shareholders owning 79% of the new business and Discovery’s shareholders owning 29%. The company will also receive $43 billion in debt securities and retention and cash.
The Need to Scale
WarnerMedia is home to streaming platform HBO Max, a fan favorite and popular news channel CNN. It also boasts numerous other channels such as HBO, TNT, and Warner Bros Studios. Warner Bros is a movie production company that is a behemoth in its own right. On the other hand, Discovery owns the streaming platform Discovery +. It is also home to fan favorites such as HGTV, The Food Network, Discovery, and Animal Planet. The merge of the two companies is a sensible move and will mean an increased ability to compete with Disney’s Disney Plus and Netflix. The new company will have a larger scale and have the ability to scale its business for future growth.
Competitive Advantage and Innovation
The merger of the two companies is a move that David Zaslav, current Discovery CEO, and slated CEO for the new company, is very excited about. Zaslav lauded the move saying the two companies would “fit together like a glove”. The two companies in their merger have the opportunity to be a major competitor to industry leaders such as Netflix and Disney. The streaming market globally is growing exponentially, and all players need to line up their troops in readiness for growth and to enable them to capture new and emerging markets. Projections indicate that the streaming market is only growing and will continue to grow well into the future. WarnerMedia and Discovery will also have the tools and expertise needed to innovate consistently and create new revenue opportunities.