Discovery and AT&T will be merging contents on a new platform

AT&T (NYSE: T), owners of HBO and Warner Bros Studios, and Discovery (Nasdaq: DISCA), home of lifestyle television networks such as HGTV and TLC, announced that they will be merging their content to create a stand-alone global entertainment system - and to form media companies. Discovery CEO David Zaslav will lead the proposed new venture, which will include one of Hollywood's most powerful studios, including the Harry Potter and Batman franchises, CNN news channel, sports programming, and Discovery's unwritten home, cooking, nature and science shows becomes. Monday's move marks the completion of AT & T's ambitious plan to forge a telecommunications and media powerhouse through a series of deals including the $ 108.7 billion acquisition of US media conglomerate Time Warner in 2018 and the purchase of the DirecTV satellite television service in 2015 for $ 68 billion. Discovery's shares climbed about 16% to $ 41.3 in pre-trading hours but later fell 2% as investors digested that it would take time for Discovery to get into streaming, Rich Greenfield said, Partner at LightShed Partners. "It will take this company a year to be able to take control of the assets," he said. "The new company will be better after the deal, but it will take time." AT&T shares rose approximately 3% to $ 33.23 following the announcement of the new company, 71% owned by AT&T shareholders and 29% by Discovery investors. AT&T said it will use the $ 43 billion proceeds from the tax-free spin-off of its media assets to pay off more than $ 160 billion in debt. The telecommunications giant also said it plans to cut its dividend payout ratio, the percentage of profits paid to shareholders in the form of dividends, to a level in the lower 40% range, down from around 60% last quarter. The business value of the new combined company will be in excess of $ 120 billion with $ 58 billion in debt, including $ 43 billion from WarnerMedia and $ 15 billion from Discovery. The name of the new company is due to be announced by next week, while other details, including the future role of WarnerMedia CEO Jason Kilar and how the combined properties and services will be arranged, remain to be worked out, executives said a call with reporters. The deal underscores the shift in TV viewers to streaming, where size is required to rival providers like Netflix Inc (NASDAQ: NFLX) and Walt Disney (NYSE: DIS) Co. "Direct-to-consumer streaming opportunities are rapidly evolving, and to keep up with it and become a leader, it takes several things - global scale, access to capital, a wide range of quality content, and the best talent the industry, "said AT&T boss John Stankey at a press conference. Taken together, the company will spend about $ 20 billion on content, more than the $ 17 billion Netflix will spend this year, and Zaslav said he expected investment in programming to increase in the future. "While further details are not yet known, the proposed horizontal combination would create a global content giant that combines WarnerMedia's world-class news and entertainment assets with Discovery's industry-leading cache of non-scripted program networks," said Keith Snyder of CFRA Research. The deal came as no surprise, Snyder added, after pressure on traditional pay TV increased during the coronavirus pandemic as consumers watched streaming shows while stuck at home. With Time Warner, former AT&T boss Randall Stephenson tried to create a media and telecommunications giant that combined content and distribution. This strategy proved costly as AT&T was simultaneously trying to roll out next-generation wireless services and most recently spent $ 23 billion on additional spectrum purchases. AT&T is not the first telecommunications company to divest its media activities. Verizon Communications Inc. (NYSE: VZ) on May 3 announced plans to divest its media businesses, which include Yahoo and AOL, for $ 5 billion, ending an expensive and unsuccessful run in the media and advertising world. The new combined AT&T and Discovery company is expected to have revenues of approximately $ 52 billion and adjusted EBITDA of approximately $ 14 billion in 2023.