AT&T and Discovery Chiefs Reveal How WarnerMedia Mega-Deal Came Together

The mega-deal that will see WarnerMedia and Discovery combine into a single media juggernaut was hatched during a series of meetings and calls in the Greenwich Village townhouse of Discovery chief David Zaslav.

But it might never have come about were it not for Zaslav and AT&T chief John Stankey’s shared passion for golf. The two men were commiserating via text message about how, due to COVID restrictions, they weren’t going to be able to see each other in person at last winter’s AT&T Pebble Beach Pro-Am. But their talk soon moved from their mutual love of the links to concerns about a media business that was rapidly evolving as companies tried to stake out space in a crowded direct-to-consumer landscape. Ultimately, both Zaslav and Stankey concluded that if the companies were going to take on the Netflixes and Disney Pluses of the world, they needed even greater scale, merging the likes of HBO, Warner Bros., HGTV, the Food Network, and TNT into one streaming colossus.

“We’re not just better together, we’re the best together,” Zaslav said in a press conference shortly after the deal was formalized on Monday.

The two executives characterized the new combination as a sort of clear-but-urgent response to current dictates in the media industry. Not only do content companies need to jump from linear venues to streaming ones, but they must also do so in a way that attracts global audiences. That requires a level of investment AT&T would not be able to sustain if it wanted to pursue efforts to develop 5G technology. “I wanted to do the right thing for shareholders,” said Stankey during a call with investors Monday. The decision allows investors who wish to do so to continue with the media assets if they desire them.

Stankey agreed with Zaslav’s account of how the deal went down, though he did push back on his description of the talks as “secret,” preferring the word, “discreet.”

“Secret sounds like we were in the Bat Cave or something,” Stankey joked.

The pact also helps alleviate AT&T’s debt load, something that was exacerbated after its 2016 purchase of Time Warner closed in 2018, and a level of leverage that imperiled its own investment in expanding 5G and its telecom infrastructure, moves that require capital. As part of the deal, AT&T will receive $43 billion in cash, debt securities and WarnerMedia’s retention of certain debt. AT&T shareholders will retain a 71% of the new, as yet unnamed company, while Discovery shareholders will control the remaining stake.

In a memo to staff, Stankey said that the spinoff will provide more resources for WarnerMedia as it looks to grow its streaming offerings around the world.

“We are now in a world where relevance and future success will be tied to greater scale and growth globally,” Stankey wrote. “To be one of the best global media companies requires not only broad and deep creative assets, but an investor base and access to capital to make it happen. The decision to combine WarnerMedia with Discovery is rooted in this conclusion.”

Zaslav suggested that combining the companies will enable WarnerMedia and Discovery to offer a bundle that will replace the highly lucrative cable bundles of yore. Under that scenario, consumers could get a deal for subscribing to both HBO Max and Discovery Plus or any additional streaming services that get launched, similar to what Disney has been doing with Disney Plus, ESPN Plus and Hulu.

“In terms of bundling…we’re going to do it differently,” Zaslav declared opaquely.

He said that the two companies will also invest heavily in content, noting that they currently spend a combined $20 billion on films and shows, which dwarfs the outlays of other media companies.

“Our core operating philosophy will be more investment on the screen, more resources for storytellers,” said Zaslav. “Success is about creative talent in front of the screen and behind the screen,” he added.

Both men expressed confidence that the deal will close in 2022, at which point Zaslav will assume control of the new entity. That could spell trouble for WarnerMedia CEO Jason Kilar, with some in the industry privately expressing skepticism that the two executives can co-exist easily.

On the call, Zaslav praised Kilar as “a fantastic talent,” while also talking up CNN boss and his longtime friend Jeff Zucker and Warner Bros. film chief Toby Emmerich.

Stankey noted that Kilar remains the CEO of WarnerMedia, though he added, “David’s got a lot of decisions to make on personnel.”

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