'All About' Warner Bros. Discovery
A few weeks back, on May 17th, AT&T announced an agreement with Discovery “to combine WarnerMedia’s premium entertainment, sports and news assets with Discovery's leading nonfiction and international entertainment and sports businesses to create a premier, standalone global entertainment company.” according to the AT&T press release.
In a nutshell, the merger “will unify brands such as CNN, TBS, TNT, HGTV, Food Network, Discovery Channel, Warner Bros.’ movie studio, and streaming services HBO Max and Discovery+. It also couples WarnerMedia’s U.S. sports rights such as the MLB, NBA and March Madness with Discovery international sports titan Eurosport '' is reporting the Observer. Companies will combine all their assets to build one of the largest media businesses.
How much are we talking about?
A 43$bn dollar deal, in cash, debt securities and WarnerMedia’s retention of debt. According to The Financial Times, the merger could create a nearly $150bn streaming giant, only five years after AT&T agreed to take over Time Warner for $85.4bn. “AT&T, which has a market value of about $230bn, is expected to control most of the combined entity. Discovery has a market value of $24bn.” added James Fontanella-Khan and Anna Nicolaou for the FT.
Financial Times: AT&T nears deal to create $150bn streaming giant with Discovery
Winners & Losers
Fox pointed out that this merger will probably not make everyone fortunate, and that certain people have come out on the right side of the bargain: “Perhaps the biggest winner is the man at the center of the new company: David Zaslav, the longtime Discovery CEO, who has been tapped to run the enterprise despite the economics of the deal which favors AT&T” while “the losers list begins with the man who is currently running WarnerMedia, Jason Kilar and the former CEO Randall Stephenson, responsible for engineering AT&T’s Time Warner gamble.”
FOX Business: Winners & losers in Discovery's marriage with AT&T's WarnerMedia
According to Alan Volk, Discovery is the real winner of this merger. “A piece that is commonly underestimated, especially by people in the industry, is the appeal of Discovery’s programming”, their longevity but also the cost factor : “at just $4 or $7/month, Discovery+ was an easy add on for many people, especially given that no one else was successfully producing this type of programming and so there was no alternative.” Alan added.
On the losers hands, Alan directly mentioned ViacomCBS and NBCU as they were also potential candidates for the merger. He is also referring to Netflix which is “left with less and less unique programming in its library (...) Netflix is trapped in that Quality Television box and has struggled to produce the sort of programming that would give it other options”
Alan Wolk, TVREV: Breaking Down The Discovery-Warner Deal: Winner, Losers, Pros and Cons
The Streaming Race or the Streaming War?
So why make this deal? “In a streaming field where Netflix (208 million global subscribers), Disney (159 million) and Amazon (200 million potential Prime Video users) generate mind-boggling D2C volume totals, the merger of WarnerMedia and Discovery makes strategic sense. The streaming wars are already overcrowded with combatants. Reforming into one fortified unit with harmonious strengths gives them a better shot at success than two separate competitors.” wrote The Observer.
One of the biggest advantages is that the combination of Discovery and Warner Media will make them compete with the two biggest players in the market, Netflix and Disney in terms of content creation. Zaslav and AT&T chief executive John Stankey are already suggesting to spend close to $20bn per year on content, which is more than the $17bn a year Netflix are reported to spend.
OBSERVER: The WarnerMedia-Discovery Merger Is AT&T’s Latest Clash of Titans
John C. Malone, chairman and largest voting shareholder of Liberty Media and Liberty Global, also sees the new firm competing with the two giants Netflix and Disney +: “I think we are not only going to be the third such platform, but I think we’ll be very competitive with the other two in terms of being able to satisfy the entertainment and curiosity and information needs of the world, basically, a worldwide platform.”
For him, the combination of the HBO offer with the international presence of Discovery will be a huge advantage in the positioning of the new firm and a great advance in the race for subscribers. AT&T said in April thatHBO and HBO Max had a combined 44.2 million subscribers in the U.S. and nearly 64 million globally. Malone said: “For me, the problem with HBO Max is it had no ability to go international at the time. The combination with Discovery, given Discovery’s existing presence, large presence in 200 countries around the world with a great brand, ... to me, that’s the great upside.”
CNBC: John Malone sees merged WarnerMedia-Discovery becoming No. 3 global streamer behind Netflix, Disney+
If we take a step back on this merger, the global entertainment & media industry has evolved at an incredible pace the last few years. And it seems that we have entered a new phase of what we are now calling “The Streaming War”. Angela Wattercutter wrote in Wired: “one of the effects of the streaming wars is that it moved the battle for culture domination to a new front. Controlling Hollywood stopped being just about who had the biggest opening weekend at the box office or a massive hit during prime time; a turf war over intellectual property became a land-grab effort to see who could bulk up their streaming service with the best library of content. Big media corporations, which previously had been licensing their content to Netflix, started pulling it back and launched bespoke streaming services to host it.”
And this tendency reminds us of a bygone Era - the television one: “for decades before the internet, TV was dominated by the Big Three: CBS, ABC, and NBC. Movies were probably brought to you by Paramount, Warner Bros., MGM, or one of a handful of others. Now all of those assets, after being scooped up and realigned by bigger companies or telecoms, have come out in a new form, one that focuses more on where content will ultimately wind up when it hits streaming rather than where it debuts.”
WIRED: The Next Era of the Streaming Wars Looks an Awful Lot Like TV
What’s next?
In this race for creating the best library of content, we will definitely see other mergers like this as it appears to be the most efficient way to be under the spotlights. And if we were mentioning Netflix, Disney and Warner Bros Discovery to spot the podium, we certainly do not have to forget Amazon, with 200 million-plus people worldwide who are currently subscribed to Amazon Prime.
Following the announcement of the AT&T and Discovery merger, Amazon announced the acquisition of MGM for $8,45 billion. “MGM is perhaps most notable for being the Hollywood studio behind the James Bond and Rocky franchises, but its library runs the gamut from classic films.” Again here, this deal makes total sense if we focus on content acquisition and Intellectual Property.
Mike Hopkins, senior vice president of Prime Video and Amazon Studios, said in a statement: “The real financial value behind this deal is the treasure trove of IP in the deep catalog that we plan to reimagine and develop together with MGM’s talented team,” Mike Hopkins, senior vice president of Prime Video and Amazon Studios, said in a statement. “It’s very exciting and provides so many opportunities for high-quality storytelling.”
CNBC: Amazon’s $8.45 billion deal for MGM is historic but feels mundane
Amazon is not only buying media production companies but also more and more sports TV rights with Roland Garros, Premier League, and more recently the french Ligue 1 UberEats rights to diversify its offer. Indeed, sport still remains one of the most attractive industries as it drives large audiences. Then, it is also important to be competitive with other main actors such as Discovery (Eurosport) or Disney (ESPN) even though live sport is riskier and tougher to convert into growth than original content production & IP.
We could also see new mergers coming on with other actors such as NBCUniversal and ViacomCBS, who have global streaming video aspirations, to add more content. CNBC made a list of potential new mergers that could happen sooner to stay in the dance. The article mentions mergers such as NBCUniversal and Lionsgate, Disney and AMC Networks and even a new potential acquisition for WarnerMedia-Discovery with Viacom CBS.
CNBC: Here are the next media mergers that make the most sense
This tendency is not limited to the US market even if it is showing the way. In Europe, “German media group Bertelsmann has chosen to merge its French television business M6 with its larger domestic rival TF1 after a months-long auction process that attracted bids from Vivendi and Mediaset among others.” wrote Leila abboud for the Financial Time.
“The new group would be well positioned to face the challenges stemming from the intensifying competition from global streaming platforms,” M6 and TF1 said. “The merger is essential to guarantee the long-term independence of the creation of French content and to be able to keep offering local content that is diversified and high quality, all in the public interest.”
Whether it is in the US or in other countries, it seems to be the Direction of History: an oligopoly situation with few competitors sharing the pie, a re-calibrated market to have only the giants that can compete between each other to: 1) create stories; 2) build love for these stories; and ultimately 3) monetize this love.
Financial Times: French TV broadcasters M6 and TF1 seek to merge
Merging to compete or merging to survive?
Saturation has become a problem. “People might be willing to pay for two or three streaming services but only devotees will sign up for five or six” writes the Financial Time. Before merging, Discovery launched Discovery + and Warner Media HBO Max, both to compete with Netflix and Disney. But was it enough to compete?
Netflix came first, and the power of its brand now seems unreachable. Disney entered the market with an army of content and a family positioning that didn't really exist before. Amazon, as a tech giant, has encompassed its video offering within other services. And what about all the others? In Deloitte’s 2021 digital media trends survey, more than half of the 2,009 respondents expressed frustration toward subscribing to multiple services to access the content they want. And if “quarantine delayed the inevitable streaming fatigue” it will definitely cause big problems for many actors who invest a lot to attract new viewers. “As more services enter the arena, viewers have more options to choose from and are constantly reevaluating the platforms’ value.” explains Terry Nguyen
“The streaming wars are going to depend on franchises, if not name brands that people recognize, trust, and rely on,” said Henry Jenkins, a media scholar and professor at the University of Southern California.
“Clustering content together behind a paywall and calling it a streaming service doesn’t automatically mean people are going to be drawn toward it in their search for entertainment,” Jenkins said. And even if consumers are fatigued, the bundling together of these platforms establishes an incentive for people to remain subscribed, whether they’re actively paying for the service or receiving it as an add-on deal through a purchase or existing subscription.
It’s possible, then, to imagine a world in which we keep subscribing — and spending — on more and more content. Everything is content, whether it’s free or paid.