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AT&T announced a $43 billion deal with Discovery that would combine Discovery with its WarnerMedia products and spin that off into a new company.
A surprisingly salient policy matter in the 2016 election was the proposed $85 billion merger announced that October between AT&T and Time Warner, the media conglomerate that housed CNN, HBO, TNT, TBS, and numerous other channels. Donald Trump, who didn’t put out all that many policy-focused statements in his political career, highlighted the deal in a campaign appearance, saying that his administration wouldn’t approve it because it would put “too much concentration of power in the hands of too few.” He even tried to follow through on that campaign promise: His Justice Department attempted to block the merger, losing in federal court in 2018.
AT&T argued that the deal was essential to its viability as a business, amid strong competition from other platforms that combined internet and cable distribution with compelling programming. Only by combining content with delivery could the company compete for scarce ad dollars and continue to build out its wireless and broadband networks. Consumers would benefit from the expanded ways to access the content. This would bolster a company with a long, storied history and enable it to thrive in the 21st century.
On Monday, AT&T said: Scratch that.
The firm announced a deal with Discovery, Inc., for $43 billion, half of the Time Warner purchase amount, that would combine Discovery with its WarnerMedia products and spin that off into an entirely new company. The new merged giant would add TLC, Discovery, Animal Planet, Food Network, HGTV, OWN, and more to the expansive roster at WarnerMedia, creating arguably the biggest media business in the world. AT&T shareholders would hang on to 71 percent of the new publicly traded company, with Discovery shareholders getting the rest.
But it would also pull AT&T out of the media business, just three years after it got in. All that talk of “synergy” and consumer benefit is over. And this is part of a pattern for AT&T, which bought DirecTV in 2015 for $48 billion and sold a big chunk of it in February to a private equity firm for a fraction of the price.
What was the point, then, of this entire enterprise? If the AT&T/Time Warner business was thriving, there wouldn’t be this move to unwind it so quickly. The ability to produce and distribute content under one roof clearly didn’t work, at least not to the satisfaction of executives and investors.
The idea was that a new online video service would help AT&T’s wireless phone business. Seriously.
The video service, HBO Max, seems to be moving along OK, though not at nearly the levels of Disney+ or Netflix. (A previous launch of live-streamer AT&T TV caused barely a ripple.) But it hasn’t and will never move the needle on a phone business, because that was a ridiculous notion from the jump. There was never a way to leverage WarnerMedia programming on AT&T cellphones, and juggling both reduced AT&T’s ability to fend off competitors and build out its programming on HBO Max and its 5G network for wireless. A company best known for connecting phone calls maybe wasn’t the best option to manage HBO, America’s top prestige television brand.
The main legacy from AT&T/Time Warner is lost jobs; thousands of them at WarnerMedia in 2020, as the parent company sought cost savings of up to 20 percent just a couple of years into the tie-up. Maybe the pandemic, which diminished revenues from Warner Bros. films and advertising on TV, created a gap that this company couldn’t bounce back from. But AT&T also cut jobs in 2019, before anyone knew the word “coronavirus.” One of the alleged benefits of the merger was to consolidate costs and benefit from scale. But again, smashing these two companies together made no sense; AT&T added nothing that Time Warner couldn’t have done on its own (in fact it did, with the proto-streaming HBO Now service).
The other legacy was a $400 million “golden parachute” for Jeff Bewkes, Time Warner’s former CEO, who stepped down when the AT&T merger went through. You would think that shrinking from two CEOs to one would be the biggest cost benefit of any merger, but the common practice is to pay off the redundant CEO with a ridiculously high sum. This is intended to grease the deal, so the bought-out company doesn’t put up a fight. Even when, as in AT&T’s case, the merger subsequently fails, Jeff Bewkes gets to keep his $400 million, unlike the thousands of workers who didn’t get to keep their jobs.
Now, WarnerMedia and Discovery will have to restructure again. David Zaslav, Discovery’s chief executive, will run the new company; Jason Kilar, who formerly ran Hulu, was just named to head up WarnerMedia last year. It’s unclear whether Kilar will accept the demotion and how much money will be offered to him toward that purpose. But we do know that Discovery and Warner Media are promising $3 billion in annual savings from the transaction, again through consolidations and synergies. When you see those words together, they spell layoffs.
So that’s two mergers, one to build a vertically integrated giant, and one to separate one bulked-up giant from another. Consumers got nothing new from the deal; producers have one less media conglomerate around to green-light projects; and cable companies have another absolute monster to deal with in negotiations for channels. Nobody was fundamentally helped, except a couple of ex-CEOs. Tens of thousands of workers will be on the streets.
Being bad at mergers and generally bad at business hasn’t really hurt AT&T, of course. Personal embarrassment and about $180 billion in corporate debt from these fiascos aside, its executives will still get paid, and it still holds a strong position in a phone business, which is now down to three main companies. AT&T doesn’t care about the livelihoods it upended in the name of moving giant companies around like pieces on a chessboard. But the U.S. government should care about what this company, and other serial merger companies like it, are doing to our economy.
