AT&T, in Abrupt Flip, Will Shed Media Enterprise in Deal With Discovery

AT&T, the wireless operator that made its way into the media business three years ago with great visions of streaming video to millions of its customers’ cell phones, has agreed to outsource its WarnerMedia group and work with its rival programmer Discovery Inc ., the company announced Monday.

The transaction will combine HBO, Warner Bros. Studios, CNN and several other cable networks with a variety of reality-based cable channels from Discovery, including Oprah Winfrey’s OWN, HGTV, The Food Network and Animal Planet.

The company will bring together two of the largest media companies in the country. AT & T’s WarnerMedia group comprises the sports-heavy cable networks TNT and TBS. In addition to The company has a large international sports shop.

The merger would also be a significant U-turn for AT&T, a telecommunications giant better known for maintaining fiber optic lines and cell towers than for producing entertainment and promoting Hollywood. Industry experts questioned AT & T’s daring purchase of Time Warner at a time when cable cutting was only getting faster. The spin-off indicates a failed acquisition strategy.

WarnerMedia is led by Jason Kilar, 50, one of the first streaming pioneers and the first CEO of Hulu. The discovery has been led by David Zaslav, 60, for the last 14 years, who helped make it a real giant. Mr. Zaslav will manage the new business.

The companies expected the deal, which must be approved by Discovery’s shareholders and regulators, to close by mid-next year.

The new company will be bigger than Netflix or NBCUniversal. Together, WarnerMedia and Discovery had sales of more than $ 41 billion last year, with operating income exceeding $ 10 billion. Such a sum would have placed the new company ahead of Netflix and NBCUniversal and behind the Walt Disney Company as the second largest media company in the USA.

To compete with Netflix and Disney, both AT&T and Discovery have invested heavily in streaming. AT&T spent billions building HBO Max, which now has around 20 million customers. Discovery has 15 million streaming subscribers worldwide, most of them for the Discovery + app.

The merger marks a major U-turn for AT&T, a telecommunications giant who entered the media business with its Time Warner foray. Industry experts have questioned AT & T’s deal, and now the spin-off points to a failed acquisition strategy.

John Stankey, the executive director of AT&T, saw his media business as a way to discourage his telephone customers from moving to other companies. AT&T Wireless subscribers receive discounts and free access to HBO Max. A contract with Discovery could include provisions that allow customers to retain these benefits.

Prior to assuming management responsibility last year, Mr. Stankey was the company’s chief merger strategist. But his track record has been blotchy. In addition to planning the acquisition of Time Warner by AT&T, he was involved in the company’s acquisition of satellite operator DirecTV for $ 48 billion in 2015. In February, AT&T sold part of the business to private equity firm TPG for around $ 16 billion, a third of what it originally paid.

For Discovery, the WarnerMedia deal could finally give Mr. Zaslav the size and size he has long been looking for. Mr. Zaslav is a bold manager who can remember review numbers. He represents the last of the old guard in the media, a hobby mogul known for holding lavish gatherings at his Hamptons home.

The new venture would create a new breed of media giant that would still thrive on the fat profits of old school cable and spend those profits (and more) on streaming.

Despite increasing competition, HBO remains a standout company on television and has again captured more Emmys in the past year than any other network, studio or platform, including Netflix. There are several hit shows including “Succession”, “Curb Your Enthusiasm”, “Barry” and “Last Week Tonight With John Oliver”. It also has a huge library that includes The Sopranos, Game of Thrones, and Sex and the City.

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