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OFFICIAL: Discovery to Merge with AT&T’s WarnerMedia, with Discovery’s Zaslav as CEO

Jason Gurwin

AT&T and Discovery have made it official. The two companies have reached a merger agreement which will see AT&T’s WarnerMedia and Discovery create a combination that would see AT&T shareholders own 71% of the new entity. AT&T will receive $43B in cash, debt securities, and retention of WarnerMedia’s debt. The company expects the deal to close in mid-2022.

Discovery’s CEO David Zaslav will run the combined company, while it is not yet known what that means for WarnerMedia’s Jason Kilar, who was not mentioned in the announcement. During the company’s press conference, AT&T’s John Stankey said that Kilar will continue to run WarnerMedia during the transition, but that Zaslav will determine personnel going forward.

During the company’s press conference, Discovery’s Zaslav said that he had been secretly architecting this deal for several months with AT&T’s John Stankey. The new company is expected to have ~$52B in revenue and ~$14B in adjusted EBITDA, including with an expected $15+ billion revenues in direct-to-consumer revenues in 2023.

The combined company currently spends $20 billion a year on content, which is similar to that of Netflix.

The deal will bring together movie studio Warner Bros., linear TV networks like CNN, TBS, TNT, Discovery, HGTV, Food Network, TLC, and Animal Planet. There’s also the daunting prospect that the new entity would have more leverage in a pricing battle with live streaming companies. Philo and fuboTV don’t carry the WarnerMedia stations. Would a newly empowered mega-company price itself significantly higher for YouTube TV or Hulu Live TV subscribers?

It will also see HBO Max and discovery+ absorbed by the new parent. Perhaps the biggest question is how WarnerMedia and Discovery would treat their streaming properties. It is not yet known whether the two services will be merged – or bundled as two separate services.

Disney bought out the 20th Century Fox catalog and bundled some of it inside Disney+ with other content heading to Hulu. For now, those remain separate entities in the U.S. But in international markets, Disney+ includes the Star tile, which provides more mature entertainment all within the standalone Disney+ app.

HBO Max could absorb discovery+ into one mega-hub. Or there could be some kind of rearrangement where some HBO Max documentary-style content might flow to discovery+, while some of the more entertainment-oriented discovery+ content moves over to HBO Max. (This option seems less likely.) More likely might be a continuation of the current services, but with a bundle pricing option.

Prices could also be affected. HBO Max is currently $14.99 while discovery+ is $4.99. The size of the combined catalog might put that bundle closer to what Disney offers with its Disney+ Hulu and ESPN+ bundle, which costs just $13.99 per month. If this new entity wants to compete, it would likely need to a bundle cost on par with that.

AT&T bought Time Warner in 2018 for $85B. This is the third major transaction by AT&T in recent months. In February, the company sold a 30% stake in DirecTV to private equity firm Apollo. The company also sold Crunchyroll to Sony in December for $1.175 Billion.

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