By Mae Anderson - The Associated Press
NEW YORK - The US multinational AT&T said Monday that, after reaching a $ 43 billion deal, it will merge its WarnerMedia mass media assets - which include HBO and CNN - with Discovery Inc., to create a new large emporium. media.
The deal, which is not scheduled to close until next year, will create a new publicly traded company that will join the vast arena of
streaming
services
,
a field already awash with strong players including those owned by AT&T and Discovery. , which operate HBO Max.
and Discovery +, respectively.
Other
larger and more established
streaming
services
- such as Netflix, Disney and Amazon - continue to lead the industry.
Netflix has more than 200 million subscribers worldwide and Disney has more than 100 million.
This is a major change in direction for
AT&T, which faced the Justice Department less than three years ago in an antitrust fight
when it wanted to acquire Time Warner Inc. for more than $ 80 billion.
It also marks the second time in 2021 that AT&T has shed a business that is not directly related to its core broadband and cell phone services operations.
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The deal still needs approval from Discovery shareholders and regulators before it can be finalized.
AT&T shareholders do not need to cast a vote for the transaction.
We explain how the new step is likely to affect the company's subscribers, investors, employees, and competitors:
✔️
For subscribers
For now, nothing is likely to change for subscribers to HBO Max and Discovery +.
AT&T executives said in a call with investors that their plans for HBO Max remain in place.
That includes a $ 10-a-month ad-supported version of the service, expected to be announced this week, and a June launch in Latin America and the Caribbean.
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In the future, the services could be combined in various ways.
They could be part of a bundle, as Disney has done with its Disney +, Hulu, and ESPN + services
.
These could remain separate or combined into one mega service.
Where each customer lives will also be a factor.
Discovery CEO David Zaslav said in an investor call that the company will find out what to do in each market and that they will "probably" experiment "in many markets."
Jeff Wlodarczak, principal analyst at Pivotal Research Group, said he believes a likely consequence is the combination of the two services, but that this will not happen for a couple of years.
"The company will not want to disenfranchise Discovery + customers and, to be fair, the average HBO Max customer and the Discovery + subscriber today are probably quite different," he said, noting that Discovery + is it focuses on reality shows while HBO Max contains others that are more scripted.
Another question is how the price of services will be affected.
HBO Max costs $ 15 a month, while Discovery + costs $ 5 a month, or $ 7 without ads.
✔️
For investors
If the deal goes through, AT&T shareholders would own 71% of the new company and Discovery shareholders would own 29%.
AT&T, long known for its high dividends, said it plans to "reset" those payments after the deal is signed.
The company will reduce the dividend payment rate from 60% to 40%.
That rate is the percentage of net income paid to shareholders for that concept.
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That means fewer immediate payments for shareholders, said Neil Begley, senior vice president of the Moody's Investors Service group.
But it will free up money for AT&T to invest in the 5G network and other broadband initiatives, leading to better long-term performance.
"If you're there for the (dividend) income, you're probably not thrilled," he said.
"But in the long run it is better for the shareholders."
Shares of AT&T fell 2.7% on Monday.
✔️
For employees
AT&T and Discovery said the combination will save $ 3 billion annually that can be spent on content and its
streaming
service
.
That will likely mean layoffs, once the departments merge and restructure.
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"There will be some layoffs undeniably," said Tuna Amobi, an analyst at CFRA.
Since it was acquired by AT&T, WarnerMedia has already gone through two rounds of layoffs, including a 5% to 7% cut in November - about 1,000 jobs.
On the other hand, after being run by a company with little experience in the entertainment industry, being under the helm of an established media company could be a welcome change for WarnerMedia employees, said Begley, an analyst at Moody's.
"They will feel again the work culture of the traditional media," he said.
✔️
For competitors
Netflix still dominates the
streaming
services sector
, being the most robust and established service, with more than 200 million subscribers worldwide.
Amazon and Disney + round out the top three industry leaders.
The combination of WarnerMedia and Discovery could turn this scene into a 'Big 4' of streaming entertainment services, said Tim Hanlon, CEO of consultancy The Vertere Group.
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"The belief is that this combination is a legitimate possibility that these two
streaming
services
will grow to take the place of the most important," he said.
That will likely lead to further consolidation among the smaller players left, including NBCUniversal's Peacock;
Paramount +, from ViacomCBS, and others.
There are about 150 to 200 minor streaming services in the United States alone, Hanlon said.
"I don't think this (from AT&T) is the last deal we see, but there will be a lot more consolidations to come in the world of
streaming
services
," Hanlon said.
