I have talked about AT&T several times in this column, even moreso if you add its media offerings Crunchyroll and WarnerMedia to the lists. While their bread-and-butter is telecommunications, the company decided to go big on media with several large purchases. These contributed to AT&T being heavily in debt, perhaps the most in-debt company in the entire world. The combination of overpaying, not understanding the market, and other factors have caused AT&T to look for ways to raise money, including undoing some of these deals. AT&T made a deal to sell Crunchyroll. DirecTV is being spin off after failing to find a buyer.
And now in their biggest surprise move yet, AT&T is now also spinning off WarnerMedia.
AT&T & Its Warner History
Again, this is a huge shift for AT&T. The conglomerate announced its intention to purchase Time Warner, owner of Cartoon Network, CNN, DC Comics, HBO, and more, for $85 billion ($109 billion including debt) in 2016.
The US Justice Department challenged the deal, saying it would “substantially lessen competition, resulting in higher prices and less innovation for millions of Americans”, although many speculated this was merely — or at least mainly — due to a grudge.
A federal judge ruled in favor of AT&T and Time Warner in June 2018, and the deal closed days later even as the government appealed the case. Time Warner was renamed WarnerMedia after the purchase. Then, after a lengthy legal battle, AT&T was ultimately victorious in February 2019.
Once the deal would officially stand, AT&T began reorganizing WarnerMedia’s assets. One of the biggest plans for AT&T was a new streaming service, which would launch in May 2020 as HBO Max.
Despite the price tag which places it above many competitors’ offerings, HBO Max has done better than expected, with the service reaching a subscriber goal for its third year in about a year.
Discovery Enters the Picture
Even as other parts of AT&T were openly put up for sale, HBO Max looked to be a central part of AT&T’s strategy. But on May 16th, there were murmurs of an announcement, and the next day it was confirmed: WarnerMedia, including HBO Max, would merge with Discovery to become an independent company.
The deal, expected to close next year, is valued at about $43 million, and AT&T’s shareholders would own 71% of the business while Discovery shareholders would hold the rest.
On the surface, this merger seems like a bit of a mismatch. Discovery is pretty much just educational and reality TV; brands like Cartoon Network and DC Comics don’t fall into those categories. Discovery+, Discovery’s streaming service, is about $5-7 a month; HBO Max is about $15. Not exactly a natural overlap of consumers.
The idea of a merger started in February, and if that doesn’t seem like a lot of time to put together a deal of this size, well, considering the new company wasn’t announced with a name, yeah, it does seem a bit hasty.
The reason for all of this is obvious: to take on the bigger giants like Netflix and Disney+. Well, that, and AT&T gets to pay off more of its debt. But again, like with DirecTV, AT&T is taking a loss (about 50%). Not to mention the time and money spent on years fighting a lengthy legal battle just to ditch it a short while later.
The Effects of the Deal
But this new Discovery-Warner would push it into the top tier among streaming services in terms of finances and subscribers. While Netflix is at the top, some predict the Big 3 — Netflix, Amazon, and Disney — could become the Big 4 thanks to this deal. As one analyst explained to The Verge, big hits and names, like WarnerMedia tends to have, help drive new subscribers; reality shows, which is a cornerstone of Discovery content, do better at maintaining subscribers.
But how exactly the new company would handle subscriptions is a big question. Will the two become an HBO-Discovery+ superstreaming service? Or will it be like how Disney has Disney+, ESPN, and Hulu services but offers a bundle discount if you want all three?
According to Axios, on average, people are willing to subscribe to an average of four services and spend $40 a month on them. So if there’s a Big 4, that will likely tie up most users’ budgets and media consumption. But raise the price too high and they may look elsewhere. After all, Discovery+ without ads and HBO Max would be about $22 a month, about half of that $40 average. An ad-included option could help alleviate that though.
Still, this news is likely to cause more deals. That’s if it’s approved, as the public and politicians shift toward an anti-big tech/media stance.
If it does go through, Comcast, with NBCUniversal’s Peacock+, and ViacomCBS, with Paramount+, are likely going to have to make big moves in order to stay competitive.
Merging Comcast/ViacomCBS as they are isn’t an option due to regulations, but they could form streaming partnerships with other services.
Perhaps like with Sony? After all, while they own Funimation and perhaps soon Crunchyroll, the only new service they’ve announced is a free streaming service if you buy one of their newest TVs.
It’s one possibility. After all, I suspect some of HBO Max’s anime lineup to eventually disappear since many shows were made possible on there through Crunchyroll. And if the new Discovery+-HBO Max has all of their own properties to invest in, I don’t know how much they’d want to invest in licensing foreign IPs.
There’s still a lot unknown at this point, and while AT&T and Discovery hope to launch their new venture in 2022, if it’s anything like the Time Warner battle, it could be several years. The two are not going to invest in a lot of changes until then. So even if the deal happens, there is likely going to be a transitional period as everything gets carried over from their owners’ streaming platforms. That’s not to mention other subsidiaries like WarnerMedia’s gaming division, which is reportedly going to be split between the new company and AT&T.
So for now, all anyone can do is wait and see what this next chapter of the Great Streaming Wars brings.