11 APR 2022

A new media-giant is born: Discovery ends its merge with WarnerMedia

Discovery completed its US$43 billion acquisition of WarnerMedia from AT&T, officially giving birth to a new company called Warner Bros. Discovery.

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Discovery completed its US$43 billion acquisition of WarnerMedia from AT&T, officially giving birth to a new company called Warner Bros. Discovery. This new combined company will create and distribute a huge portfolio of content, brands and franchises across television, film and streaming.

The group now combines WarnerMedia’s premium entertainment, sports and news assets with Discovery’s non-fiction and international entertainment and sports businesses, including Discovery Channel, discovery+, Warner Bros. Entertainment, CNN, CNN+, DC, Eurosport, HBO, HBO Max, HGTV, Food Network, Investigation Discovery, TLC, TNT, TBS, truTV, Travel Channel, MotorTrend, Animal Planet, Science Channel, New Line Cinema, Cartoon Network, Adult Swim, Turner Classic Movies, and others.

“Today’s announcement marks an exciting milestone not just for Warner Bros. Discovery but for our shareholders, our distributors, our advertisers, our creative partners and, most importantly, consumers globally. With our collective assets and diversified business model, Warner Bros. Discovery offers the most differentiated and complete portfolio of content across film, television and streaming. We are confident that we can bring more choice to consumers around the globe while fostering creativity and creating value for shareholders. I can’t wait for both teams to come together to make Warner Bros. Discovery the best place for impactful storytelling,”  said David Zaslav, Chief Executive Officer of Warner Bros. Discovery.

John Stankey, CEO of AT&T, added: “In WarnerMedia, Discovery inherits a talented and innovative team, and a dynamic growing and global company that is well positioned to lead the transformation that’s taking place across media and entertainment, direct-to-consumer distribution and technology. The combination of the two companies will strengthen WarnerMedia’s established and leading position in media and streaming. And our shareholders will now have a significant stake in Warner Bros. Discovery and its future successes. We look forward to seeing what the WBD team accomplishes with these industry-leading assets.”

Under terms of the agreement, which was structured as a Reverse Morris Trust transaction, at close AT&T received US$40.4 billion in cash and WarnerMedia’s retention of certain debt. Additionally, shareholders of AT&T received 0.241917 shares of WBD for each share of AT&T common stock they held at close. As a result, AT&T shareholders received 1.7 billion shares of WBD, representing 71% of WBD shares on a fully diluted basis. Discovery’s existing shareholders own the remainder of the new company. In addition to their new shares of WBD common stock, AT&T shareholders continue to hold the same number of shares of AT&T common stock they held immediately prior to close.

●  WARNER BROS. DISCOVERY LAUNCHES AS ONE OF THE BIG THREE MEDIA GIANTS

With the long-awaited merger of Discovery and WarnerMedia finally closing, Parrot Analytics has assessed where the new company stands in the global race for streaming and entertainment dominance. According to Parrot, Warner Bros. Discovery will launch as one of the Big Three media giants - alongside Netflix and Disney - leading the industry in vertically integrated streaming.

The combined entity is projected to start out within just 1.5 percentage points of Disney in corporate demand share, a key metric demonstrating the long-term viability of media companies as they look to bring their full catalogs onto a unified streaming service or bundle.

Another result of the merger is that only five media companies now control 70% of US audience demand for all TV content, with further industry consolidation likely in the coming months and years.

Warner Bros. Discovery’s undisputed crown jewel asset is HBO Max - 2021’s fastest growing streaming service in US originals demand share, and home to one of the industry's most valuable and highly in-demand content libraries. The key question, according to Parrot, is how to best merge or bundle HBO Max with discovery+, and how to sell that product to consumers with limitless entertainment options.

“If the earliest days of streaming promised the great unbundling from cable giants for cord-cutters, new waves of consolidation amongst the top conglomerates seems positioned to bring back a new great bundling of some kind. It is clear that Discovery and WarnerMedia’s vast array of content is complementary and in high demand, but concerns about pricing at the ad-free tier and creating a bloated product that detracts from what customers are really looking for loom,” Julia Alexander, Senior Strategy Analyst at Parrot Analytics, said.

Nevertheless, a breakdown of demand data for each platform suggests HBO Max and discovery+ have the potential to work well together in expanding each other’s audiences, while also being able to reduce churn, thus making the future HBO Max product or bundle one of the few "must have" SVODs for American and global consumers, Parrot noted.

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