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Bigger Than Netflix? AT&T and Discovery in Advanced Talks to Combine Media Companies

AT&T Discovery District
The presciently branded AT&T Discovery District development in Dallas. (Image credit: AT&T)

Signaling an abrupt pivot for AT&T, the telecom is reportedly in advanced talks to merge its WarnerMedia unit with Discovery Inc., creating a media giant that took in a combined $41 billion in 2020 alone. 

The deal could be announced as soon as Monday, according to reports in numerous major publication, confirming a break first reported by Bloomberg Sunday morning. 

The agreement would merge HBO Max, Turner Networks, CNN, Warner Bros. Pictures and other WarnerMedia properties with Discovery’s global portfolio of media networks and streaming platforms. 

Discovery Inc. currently has a market capitalization of more than $16.6 billion. Combined with WarnerMedia, the duo generated more revenue than Netflix last year ($25 billion), trailing only Disney ($65.4 billion) among the media titans.

WarnerMedia’s HBO unit has nearly 64 million subscribers globally as of the end of the first quarter, most of which it hopes to convert to the IP-based HBO Max service over the next few years. Discovery reported 15 million streaming customers worldwide at the end of Q1.

Combined, WarnerMedia and Discovery would fall well short of the streaming reach needed to match or surpass Disney (nearly 150 million worldwide when you combine Disney Plus, Hulu and ESPN Plus), and certainly Netflix (over 203 million customers). But the combined resources of WarnerMedia and Discovery would get it closer the Big Two, in terms of scale, than any other conglomerate on the global media stage. Again, both WarnerMedia and Discovery have millions of linear subscribers to digitally convert over the next few years. 

A Wealth Destruction Machine

For its part, AT&T paid $49 billion to acquire DirecTV in 2015, and is now in the process of spinning off that satellite TV operation, as well as its other pay TV assets, in a joint venture with private equity firm TPG that only values the assets involved at $15.5 billion. 

Three years later, AT&T battled the Trump Administration DOJ in court to gain approval for an $85 million purchase of the erstwhile Time Warner Inc. 

“AT&T didn’t know what they were buying,” said Brian Wieser, president of global business intelligence for GroupM, to the New York Times. “The strategy underpinning [the acquisition] “was probably flawed.”

Like its wireless rival, Verizon, which is also in the process of divesting its media assets, AT&T is knee-deep in huge technology investments needed to deploy 5G nationwide. AT&T is also investing heavily in.