the Warner-Discovery merger raises the stakes

The streaming wars have just entered a new phase. The merger between AT&T e Discovery Inc., which will go into effect in mid-2022, will bring together television channels such as CNN, TBS, TNT, HGTV, Food Network and Discovery Channel, as well as the Warner Bros. studio and streaming platforms such as HBO Max e Discovery+.

Thus a colossus is born that has the potential to fight with Netflix e Disney in the same playing field, and which in 2023 should boast revenues of 52 billion dollars, of which 15 should come from services direct-to-consumer, namely streaming. Namely, that is, HBO Max and Discovery +, two entities that did not exist until a year ago and now become sisters. In the case of HBO Max we are talking about 44 million users, even if the figure is cumulative between the streaming service and the HBO cable network. Discovery + has garnered approximately 13 million signups since its launch in January.

The pact between the two giants has been compared to that between Disney and Fox, and in fact both are strategic moves, in view of a future in which it will be essential to have extensive content libraries full of major brands. This is true for Disney / Fox and is true for Warner / Discovery. On the one hand, Warner Bros. owns franchises such as Harry Potter, the DC Universe e Game of Thrones. On the other hand, Discovery has an unscripted product library and owns the channel Eurosport, which, combined with the NBA and Major League Baseball rights held by WarnerMedia, could make sparks fly.

The agreement

WarnerMedia and Discovery will merge through an equity move called the Reverse Morris Trust: AT&T is expected to receive $ 43 billion in cash and debt, and the maintenance of some of WarnerMedia’s debt. AT&T shareholders are expected to receive shares representing 71% of the new company, those of Discovery 29%. The new company will change its name, but for now this has not been announced.

The other very important news is that David Zaslav, CEO of Discovery, will be the new CEO in place of the outgoing Jason Kilar. The latter held the position for thirteen months, during which the world was hit by one of the most serious crises of the century. During the winter of Covid, Kilar found himself making an unprecedented decision in the industry: the simultaneous release of all Warner movies in theaters and on HBO Max.

The pulse of Hollywood

This had surprised the American show business, because Warner is a studio that has traditionally always put the authors and the quality of the content first. And now he found himself against the authors and producers, irritated by the unilateral decision. People like Christopher Nolan, undoubtedly the most important director in the Warner stable, but also collaborators like Legendary Pictures, which had frowned upon which films it financed, such as Godzilla vs. Kong e Dune, were intended for streaming. The move was seen, in short, as reckless, the result of the decision of a CEO who did not really have the pulse of the situation and a thorough knowledge of the dynamics of Hollywood. And this despite, in the end, the bet paid off: Godzilla vs. Kong it became Hollywood’s biggest hit during the pandemic, grossing over $ 400 million worldwide and $ 95 at home.

Unlike Kilar, Zaslav is highly regarded in the world: he trained in television, having started over thirty years ago at NBC, only to be hired in 2007 as the head of Discovery. He is therefore perceived as a man of the sector, whom he knows intimately. And he has already promised that he will spend a lot of time in Los Angeles and that his team will rebrand “creative culture in the media.” The priority to the authors therefore seems to have been restored, while regaining their trust will be a more complicated process that will pass, perhaps, from the renunciation of some day-and-date releases (such as that of Dune, that it could debut in Venice and then released exclusively in American theaters).

Zaslav oversaw the launch of Discovery +, and managed to do so without alienating cable operators and making deals with Roku and Amazon to distribute the app on their devices, deals WarnerMedia struggled to achieve.

But HBO Max also has a monthly cost problem: the subscription to the platform costs $ 15 and is significantly more expensive than that of the main rivals. This is due to the presence of HBO, which costs the same amount – it would be strategically difficult to justify a lower price for HBO Max without undermining the cable service. Discovery + costs $ 7 a month for the ad-free version, and $ 5 a month for the ad-free version. Zaslav said he will take a few months to look at the two platforms and figure out how to integrate them.

Invest in content

Zaslav also promised that investments in content will be increased. But it will have to deal with an estimated $ 55 billion debt that Discovery will inherit from the merger (the company’s debt currently stands at $ 14.7 billion). Merger which, however, should also generate 8 billion in free cash flow which should make it possible to reduce debt fairly quickly. But for large investments there will probably be a wait.

And this expectation could represent a weak point for the new giant. As mentioned, the deal is not expected to close until mid-2022, and this will force both WarnerMedia and Discovery to a halt that will give competitors like Netflix, Apple and Amazon time to relaunch.

The deal between AT&T and Discovery pushed Evan Shapiro, CEO of O (1) Labs, to update his map of the media scenario, which is getting closer and closer to a war map in which the big “bubbles” eat the small ones.

The scenario is becoming increasingly fierce, therefore, and the streaming wars continue: Amazon is considering the purchase of MGM, while, in France, Bouygues Group e RTL Group announced the merger of the leading broadcasters TF1 and M6 to form a new European television giant. The combination of the MyTF1 and 6play platforms could give birth to a new global competitor in the war for Netflix domination.


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