A new AT&T merger unwinds a previous one

Over the weekend, a massive merger agreement was hammered out between telecom giant AT&T and entertainment company Discovery Inc. If it receives the blessing of federal regulators, AT&T will spin off its WarnerMedia unit—which includes CNN, HBO, and other assets—into a separate company that it will co-own with Discovery. The usual descriptions followed: it was a merger made in heaven (Discovery chief executive David Zaslav said the two “fit together like a glove”), with numerous synergies, and would create what the New York Times called “a juggernaut.” As Paul Farhi, Washington Post media reporter, pointed out following the news, a number of deals over the past two decades were described in similar terms, including the merger of Time Warner and AOL in 2000, in a deal that was worth about $165 billion at the time. It was later unwound, with Time Warner taking a massive write-down and spinning off AOL as a separate company.

Despite the hyperbole, a number of analysts and media industry experts believe the deal represents an admission of failure by AT&T. The company said it planned to buy WarnerMedia in 2016, and spent the next two years fighting with competition regulators for approval to do the deal. The acquisition was finally approved in 2018, and AT&T bought the company for $85 billion, which it heralded as the start of a new media and entertainment empire.

The unwinding of the deal is “a major course correction,” Axios wrote about the new arrangement. “The deal essentially confirms shareholder fears that the company’s $85 billion merger with Time Warner three years ago was not fully baked.” Wall Street media analyst Brian Wieser told the New York Times that “AT&T didn’t know what they were buying” when they acquired the content company, and that the strategy “was probably flawed.” A WarnerMedia veteran told Vanity Fair, “There’s no way this deal doesn’t make AT&T look like fools.”

This isn’t the first such deal that AT&T has unwound over the past year. In February, the company spun off its DirecTV satellite television business at a significant loss, when compared with what it paid to acquire the company in 2015. And it isn’t alone in undoing such deals: earlier this month, Verizon sold AOL and Yahoo for $5 billion to the private equity firm Apollo Global Management, after the telecom company acquired the two content producers in 2015 and 2017 for a total of $9 billion. Like AT&T, Verizon pitched the acquisitions as a way to provide valuable synergies between its distribution network and content production. But both AOL and Yahoo were arguably on their way to becoming dinosaurs when those deals happened. And the world has changed even more dramatically for companies like WarnerMedia and Discovery, as streaming entertainment services offered by Netflix and Apple and Amazon have stolen a lot of the thunder from traditional television.

In effect, AT&T is hoping it can redeem its WarnerMedia purchase by owning a smaller chunk of a much larger entity, one that might be able to compete with Netflix, or even an entertainment colossus like Disney. Together, WarnerMedia and Discovery generated more than $41 billion in sales last year, with a combined operating profit of over $10 billion, which the Times says would put them ahead of both Netflix and NBCUniversal, and just behind Disney. And if they spent the same amount on creating new movies and TV shows or buying the rights to existing ones as they did when they were separate companies, it would amount to $20 billion—more than the $17 billion Netflix said it would spend this year. In other words, the big become bigger.

Where does that leave news media companies? In much the same place as before: squeezed in with the entertainment assets of a conglomerate, as CNN has been for some time, or owned by a hedge fund, as AOL and Yahoo now are, and as so many regional newspapers are with Alden Global Capital.

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Whether it’s newspapers, radio, or television, the future seems to be either a series of tiny independents—Substack newsletters, podcasts, YouTube creators, and so on—or an increasingly precarious foothold in the land of the giants, with behemoths like AT&T and Disney and Alden Global Capital moving assets around like chess pieces, constantly cutting staff and resources to keep their profits high. The middle market—small-to-medium-size regional papers, etc.—seems to be increasingly hollowed-out, with the occasional nonprofit entity surviving through donations from foundations. And then there are a few prominent names that have been rescued by benevolent billionaires, like Jeff Bezos and the Washington Post or Marc Benioff and Time magazine, and a few unicorns like the New York Times. The future of the rest remains a gigantic question mark.

Here’s more on AT&T and Discovery:

  • Kilar out? On May 14, the Wall Street Journal published a flattering profile of WarnerMedia head Jason Kilar and his plans to remake Hollywood in his own image. On Monday, when the news about the WarnerMedia merger with Discovery broke, it included a number of reports that made it sound like Discovery head David Zaslav would be the leader of the combined entity; the New York Times reported that Kilar has hired a legal team to work on an exit package from the company. According to the Times, the WarnerMedia executive was kept in the dark about the merger deal and only found out recently.
  • MGM buyout? A report in The Information says that Amazon is considering acquiring MGM Holdings for as much as $10 billion, to add to its streaming video service. MGM owns a major Hollywood film library, with interests in the long-running James Bond movie franchise as well as other well-known titles such as Rocky and The Pink Panther. The report also notes that MGM  owns the Epix cable channel and makes TV shows, including The Handmaid’s Tale and Fargo, and reality shows such as Shark Tank and Survivor.
  • Other deals? Some analysts say the AT&T and Discovery merger raises the possibility of other potential tie-ups, according to a report in the Journal, including Comcast, which owns NBCUniversal, and ViacomCBS, which owns CBS and Paramount. When Viacom merged with CBS in 2019, analysts said the company would need to do further deals in order to be competitive. At the time, they speculated that potential targets for ViacomCBS might include Discovery, MGM, AMC Networks, and Lionsgate Entertainment, which owns the premium content network Starz.

 

Other notable stories:

  • Yesterday, New York Public Radio said it had fired Bob Garfield, veteran staffer and cohost of On the Media, following an investigation—conducted by an outside party—that found Garfield had violated the organization’s anti-bullying policy. NYPR said Garfield was also the subject of a similar investigation last year, which resulted in disciplinary action and a warning about the consequences if the behavior continued. Garfield said on Twitter that he was fired for “yelling in 5 meetings over 20 years. Anger mismanagement, sorry to say. But in all cases, the provocations were just shocking.” 
  • The Intercept posted a public defense of its coverage of Gab, the right-wing social network, and the so-called Riot Squad, a group of journalists whose clips of violence at Black Lives Matter demonstrations have been used to discredit the movement. “Wild and unfounded accusations have been hurled at The Intercept,” the site’s note to readers said, but “none of these attacks have any merit whatsoever.” In a reference to Intercept cofounder Glenn Greenwald, the statement said “it is particularly sad and infuriating that much of the impulsion for this campaign has been generated by the unbalanced tweets of a founder of The Intercept who resigned and falsely accused The Intercept of censoring him.”
  • Maria Bustillos, CJR’s public editor for MSNBC, wrote about the network picking fights and trying to stoke outrage against Fox News host Tucker Carlson. “Cable news organizations, if they wished, could take steps to cool the boiling antipathy between Republicans and Democrats in the US that has come to be known as ‘political polarization,’ ” she wrote. “Just leave the rage aside, and focus instead on broadcasting information that would be beneficial for their viewers to know. But MSNBC doesn’t appear to be as interested in fulfilling its responsibility to the public as it is in stoking outrage.”
  • Ben Smith, the New York Times media reporter, wrote about how a group of former contestants on the game show Jeopardy! became convinced that a contestant who won multiple times had made a racist hand gesture on the program, even though this has not effectively been proven true. “The Jeopardy! story is a remarkable case study for a couple of reasons,” he writes—including that “the participants represent a particular kind of American achievement—the mastery of facts and trivia.” 
  • Damon Weaver, who became famous at the age of eleven when he interviewed President Barack Obama, died on May 1 at the age of twenty-three. Weaver’s sister confirmed his death to the press; no cause of death was reported. During the interview with Obama, Weaver asked about the president’s efforts to improve education in lower-income areas of the US, including his hometown of Pahokee, Florida, and also asked Obama about his love of basketball. In addition to his interview with Obama, Weaver also did high-profile interviews with other celebrities, including Oprah Winfrey.
  • More Americans say news organizations are gaining influence than say their influence is waning, according to new research from the Pew Research Center. Those results represent a reversal from a year ago, when the center did a similar survey. This time around, when Americans were asked to evaluate the media, 41 percent said news organizations are growing in influence, compared with 33 percent who said the media’s influence is declining. The remaining one-quarter of US adults say the media is neither growing nor declining in influence.
  • Matthew Belloni, former editorial director at the Hollywood Reporter, has become a founding partner of a new media company that will cover politics, finance, tech, and entertainment, according to a report from TheWrap. The unnamed publisher, which has raised $7 million in venture funding, says it plans to launch sometime this summer. Other founders include Jon Kelly from Vanity Fair, Joe Purzycki of Vox Media, Max Tcheyan from The Athletic, and Liz Gough from Condé Nast.
  • German media giant Axel Springer and Facebook said on Monday that they had agreed on a global cooperation deal under which content from the publisher will be featured on the social network and its Facebook News product, Reuters reported. The company signed similar deals with a number of smaller German publishers in March, but Axel Springer said it wasn’t interested at the time. Chief executive Mathias Doepfner described the new cooperation deal as “a strategic milestone for us as a publisher and for the industry as a whole.”
  • British GQ editor Dylan Jones is leaving the men’s lifestyle magazine after twenty-two years at the helm, according to a report from Press Gazette. GQ’s publisher, Condé Nast, is merging its editorial teams in the US and the rest of the world under a new global digital-first content strategy. The publisher has yet to confirm the number of jobs that will disappear as a result of this change, but Jones is so far the most high-profile name that will be leaving any of the chain’s magazine mastheads in the UK.

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Mathew Ingram is CJR’s chief digital writer. Previously, he was a senior writer with Fortune magazine. He has written about the intersection between media and technology since the earliest days of the commercial internet. His writing has been published in the Washington Post and the Financial Times as well as by Reuters and Bloomberg.