Well, that didn’t take long. Not even three years after plunking down a cool $85 billion for what used to be called Time Warner (among previous other monikers from previous other bad deals later unwound), and then wading through a Justice Department antitrust suit, AT&T said, “Eh, never mind.” It’s getting, mostly, out of the media business.
Wall Street’s largely celebratory response to a planned spinoff/merger with Discovery Inc. was instructive, if cognitively dissonant. Shares went up, especially for new bridesmaid Discovery, which brings its eponymous lead network, Animal Planet, Food Network, HGTV, and the Travel Channel to the dance with CNN, HBO, Cartoon Network, TBS, and TNT. But, um, why?
Presumably the deal, like a previous spinoff of DirectTV (at a third of that company’s 2015 purchase price) will lighten AT&T’s extraordinary debt load and let it focus on the main thing it does, building a continent-girdling 5G wireless network to compete with Verizon (which just sold off its last content holdings) and T-Mobile (which just dumped its brief and ill-conceived venture into skinny bundles).
Maybe they were excited to see what Discovery CEO David Zaslav, a veteran media-company operator, can do with the resulting content giant. Maybe they think aging but wily media investor John Malone, who owns 28 percent of Discovery among other assets, has one more great deal in him. Perhaps together, investors expect the two will effectively run the show, or shows in this case, some 200,000 of them.
All that said, today’s announcement has spurred a whole bunch of other questions about the Great U-Turn, as this shall be known henceforth. To wit:
- What happens to Jason Kilar, the digital-savvy ex-Hulu and Vessel chief? He was brought in almost exactly a year ago to run the renamed WarnerMedia just as it launched HBO Max in remarkably desultory fashion early in the pandemic. But in the flurry of spinoff announcements, his name has been notably absent. No one’s worried about Kilar’s next meal, but he actually did what he was supposed to do, tearing down a whole bunch of silos, and optimizing a hidebound company full of legacy operations for a digital future. That he stepped on a lot of toes across Hollywood in doing so may have made him a sacrificial, well, wolf, but them’s the breaks. I’ll be looking forward to his next act regardless.
- Does the merged company keep operating both HBO Max, at its market-topping $14.99 a month subscription price, and just-launched Discovery+, with 55,000 hours of basic-cable programming, along with the leftover bits and pieces of previous-generation streaming services such as HBO GO? Can the spinoff build a sturdy bundle out of HBO Max and Discovery, now that standalone services are finding the need to huddle together to drive subscriber adds and reduce churn?
- Should the spin-off restack its streaming offerings? Should it reprice them? One observer I saw suggested that perhaps CNN’s 24-hour news programming and Turner’s NBA and other sports programming might fit better amid DIscovery+’s endless reality shows. I’m not so sure about that. When you charge the most of any mainstream service, you better bring a lot of high-demand programming, not just a pitch that you’re a legacy premium cable service with a collection of random (excellent) old stuff. This year’s decision to go day-and-date with Warner Bros. film releases in theaters and on HBO Max was a compelling value proposition, but it’s supposed to go away in 2022. What will make people want to pay $15 a month next year? A longer season of Euphoria? A romantic comedy based on Kate Winslet’s Mare of Eastown?
- Will the spinoff have enough production funding to compete with tech giants? AT&T was so cash-starved it turned down Kilar’s requests to double an impoverished annual content budget of $2 billion. Kilar wanted to better keep up with Netflix, which is spending $17 billion this year, and other deep-pocketed (and less expensive) competitors such as Apple’s TV+, Amazon Prime Video and Disney+/Hulu. The spinoff won’t have to worry about gigantic headaches like building out a massive 5G wireless network, paying off $180 billion in debt, or financing a decades-old dividend tradition that keeps a significant chunk of shareholders around (as it is, the company also cut its dividend, though it used language that camouflaged the significant impact). Can the spin-off, without those predominating AT&T priorities, finance enough programming to truly compete with the big boys?
- Does Jeff Zucker stick around at CNN now that he’ll be working for a media guy (and reportedly a long-time friend) instead of a Bellhead or a digital-media bro? After resuscitating the CNN brand, especially during last year’s election craziness, Zucker told staff he was planning to leave at year’s end. Does that change under the new regime?
- How does this deal intersect with other Malone investments, such as Liberty Media, Liberty Global and cable/broadband provider Charter Spectrum? Are there additional deals ahead? Given the Great Unwinding, should additional deals be sought?
- Can AT&T get its money back from former CEO Randall Stephenson? The architect of the $48 billion DirecTV deal and the $85 billion Time Warner deal wanted to turn America’s original boring giant telephone utility into a sexy, hot digital-media company. Maybe he just wanted to be invited to better parties, like so many who invest in Hollywood. Regardless, Stephenson retired last year with a quite lovely substitute for a golden watch, valued at around $64 million. But less than a year after Stephenson ambled off into retirement, both his landmark deals are unraveled. That suggests they might have been Really Bad Ideas all along, and he perhaps should not have been so richly rewarded in gratitude and gold. Shareholders, in fact, might want claw back some of that cash, given Stephenson’s grand vision proved both short-sighted and short-lived. That’s to say nothing, of course, about the other many billions of dollars wasted on the deal, the crushing debt it created, the lost opportunities it forced, and all the other changes that resulted. Dumb ideas, particularly at massive scale, ought to have some consequences, even in corporate America. Just sayin’.
- Can some of the many, many thousands of WarnerMedia employees laid off over the past three years get their gigs back? Or could they at least get an apology from the schmuck powers that be for unnecessarily and gratuitously wrecking their lives?
- Can we restart some of the smart little businesses that AT&T killed off or sold off after acquiring Time Warner’s assets, as it ransacked the cupboard to save money and generate a tiny bit of cash? Not all of those companies were bad acquisitions, or deserved to be shut or shuffled off. Drama Fever appeared to be a sustainable subscription-video service, showing Korean soap operas to an avid and surprisingly international audience. And CrunchyRoll is a sturdy business most companies would want in their portfolio. Sony certainly thought so, in trying to acquire CrunchyRoll from AT&T, though antitrust regulators may still block the deal.
- Generally speaking, can we just stop doing these dumb-ass cross-sector mega-deals? If the world’s biggest shoe company, a solidly run if not inspiring organization that had made shoes for a century, went and bought a couple of media companies, would we value the resulting shoe-media company at 20X earnings because the executives said they would use their media platform to sell shoes? Or would we understand that there’s not a lot of “synergy” there, just different businesses that might save money on some back-office consolidation, but don’t have much else in common?
- Speaking of challenging synergies, this winter, the puckish analysts at LightShed Partners suggested that AT&T spin out its media operations and merge them with….NBCUniversal. As with AT&T, there’s not a lot of synergy between a broadband provider such as Comcast, and a company that creates that stuff that that flows through that big ol’ pipe that Comcast runs. Comcast actually brought stability to NBCU after a couple of decades where the media company changed owners every two or three years. That’s great. But we’re still waiting to see what big wins that’s generated for Comcast. Peacock, so far, hasn’t made much of an argument, despite that near-endless One21 presentation a month ago. Will we see another giant spinoff anytime soon?
- And finally, as always, does this deal set off other kinds of Hollywood consolidation? Apple has hunted for libraries most of the past year so people can watch something after they’re done with its relative handful of originals. It says a lot about the success of that search that Apple still isn’t charging original TV+ subscribers. Meanwhile, ViacomCBS and its Paramount+ service still feel undercooked, especially if you’re not a Star Trek fan. And while we’re at it, let’s line up the usual suspects – Sony, Lionsgate/Starz, MGM/Epix, AMC/AMC+ – and ask how long they can hope to remain separate and successful? Sony appears to have made its peace as a Switzerland studio, producing for all comers (and nicely cushioned by the hugely successful PlayStation 5). For everyone else, a deal still feels inevitable.