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AT&T has agreed to split and combine WarnerMedia with rival Discovery in a multimillion-dollar deal to create a media empire that has the programming capability to compete with Disney and Netflix in a global environment streaming race.
The deal comes just three years after AT&T paid $ 85.4 billion to the owner of CNN, HBO and Warner Bros. and reflects the pace of change in traditional U.S. media groups trying to reinvent himself as transmission services.
Under the proposed link, one of Hollywood’s most prized portfolios, including Warner Bros. film and television studios, the HBO network and a cable channel portfolio including CNN, will meet with the “real-life” production of Discovery, whose brands range from sports and wildlife to home renovation.
David Zaslav, the longtime CEO of Discovery, will lead the combined group, which will be 71% owned by AT&T. Jason Kilar, an executive introduced last year to speed up WarnerMedia’s transition to streaming with HBO Max, was not mentioned in the merger presentation.
The transaction represents a humiliating withdrawal for AT&T, which amassed one of the largest debt stacks in the United States to become the largest vertically distributed distribution and content company in the world. “This should end the debate over the synergies between content and distribution,” said Jonathan Chaplin, an analyst at New Street Research, who called the deal a “complete capitulation.”
The derivation is the latest in a series of less experimental arrangements by John Stankey, who took over as chief executive last year, to unravel the expansionist legacy of his predecessor and refocus the company on his main business.
This included the sale of a 30% stake in DirecTV to private equity group TPG this year. The deal valued the damaged television business at $ 16.25 million, about a third of what Stankey’s predecessor paid six years ago.
The impetus for the deal is the accelerated race between the world’s largest tech and media companies to catch up with Netflix and own a share of the future of entertainment. In the last 18 months alone, Disney, Apple, WarnerMedia, Comcast, Discovery and others have launched streaming platforms with global ambitions.
Writing before the announcement of the deal, Citi analyst Jason Bazinet said he could imagine “other potential suitors entering the fight” for Discovery or propose a merger in competition with WarnerMedia. “We would not rule out the involvement of Comcast, Disney or ViacomCBS,” he wrote.
AT&T and Discovery included significant termination fees in the agreement, agreeing to pay $ 720 million or $ 1.8 million, respectively, if the agreement occurred.
Discovery and WarnerMedia generated a combined revenue of $ 41 billion in 2020, which compares to the $ 65 billion in revenue from Disney, the world’s largest media group.
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