AT&T withdraws from media with Discovery deal | WARC | The Feed
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AT&T withdraws from media with Discovery deal
US telco AT&T has announced plans to spin-off its WarnerMedia business and merge it with one-time competitor Discovery, as the US network giant withdraws from the hands-on management of media business and the new venture readies for the next phase of the streaming wars.
Why it matters
The news heralds a “content colossus”, as TechCrunch puts it, with a vast combined library ranging from Game of Thrones to Guy Fieri, which will – if successful – still add value to AT&T shareholders without many of the complexities of vertical integration.
The bet, instead, is that the brands within the two portfolios will be more magnetic than the pull of a mobile phone contract with content on top.
Still, it is a major about-face that after a massive acquisition in 2018, which included a Justice Department competition lawsuit, AT&T has had to reassess where its properties can work together – a big blow to the quad play (mobile, TV, broadband, and voice) that was the strategic north star for the telecoms industry just a few years back.
What we know
- The new entity is as yet unnamed, but it will bring together two significant players in the frothy streaming space: Warner’s HBO Max (9.7 million subscribers) and Discovery+ (15 million subscribers).
- The companies believe that the deal, which would bring together a combined turnover of $41bn, will set the new company up to compete with much larger rivals as it targets $52bn by 2023. For comparison, Disney pulls in $65bn and has attracted over 104 million subscribers.
- At a business level, the new group will be 71% owned by AT&T with the other 29% owned by Discovery. Subject to regulatory approval, the deal is expected to close in 2022.
Only three years after AT&T parted with a whopping $85.4bn (and racking up an eye-watering amount of debt in the process) as part of a strategy in which content could add value to the telecom company’s overall offer, it is retreating from the bet. Demands on its core telecoms business have increased as it races to keep up with the investments of its competitors like Verizon and T-Mobile in fibre broadband and 5G.
Discovery, meanwhile, is showing the benefit of its pivot to SVOD (Subscription Video on Demand) with a deal that will add significant production and library firepower to its factual core.
At the sector level, it means two players that had gone after separate audiences create a much larger slice of the potential audience in an attempt to gain a foothold. It won’t be easy, however: Netflix is noticing the limits of its growth in core markets as it struggles to continue the same trajectory that took it to more than 208 million global subscribers. Still, there is plenty to play for: Ampere research shows that half of consumers use at least two SVOD services
Sourced from AT&T, TechCrunch, Financial Times
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