AT&T ditches media dreams as it spins out WarnerMedia

Communications group AT&T is spinning off its WarnerMedia business just three years after buying it. Matthew Partridge reports

Wonder Woman
WarnerMedia assets such as Wonder Woman may do better in Discovery’s hands
(Image credit: © Warner Brothers Inc)

When John Stankey became chief executive of AT&T last year, he promised to rethink the direction of the $230bn telecoms conglomerate, says Jennifer Saba on Breakingviews. This week he showed that he’s “keeping his word” by announcing that AT&T will be merging most of WarnerMedia, its news and entertainment division, with television network Discovery. AT&T will receive $43bn, while AT&T’s shareholders (not AT&T) will own 71% of the new company, which will be run by Discovery’s chief executive David Zaslav. AT&T shares rose by around 2% after the move was announced.

The deal marks an “embarrassing U-turn” for the group, which only created WarnerMedia three years ago when it splashed out $85bn on Time Warner, says Simon Duke in The Times. The idea was that the deal, which took more than two years and a court fight to get approved, would usher the television and movie industry into “the digital promised land”. In the end, it left AT&T “saddled with about $161bn in debt”, while also failing to “harness the potential of its media assets”, as TimeWarner was left behind by the rise of streaming services such as Netflix and Disney+.

Making the right decision

AT&T’s decision to get rid of Time Warner may be an admission of failure, but it is the right decision, says Dan Gallagher in The Wall Street Journal. After all, AT&T has a “pressing need” to invest in expensive technology like 5G to “keep its network business competitive”. That will be easier now that it doesn’t have keep up with the “billions being poured into new streaming content” by Disney, Netflix, Apple and Amazon. What’s more, “unwinding its largest acquisition to date” may also help snap it out of the “permanent deal mode” that it has been in since the late 1990s.

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The deal also represents a big opportunity for Zaslav, says Tara Lachapelle on Bloomberg. This “king of trash TV” is now in charge of the HBO, CNN, TBS and TNT networks, the Warner Bros movie studio and the DC Comics superhero franchise. What’s more, he now has the opportunity to combine HBO Max and Discovery+ into “a streaming super-app” that could give Netflix Inc. and Disney+ “a run for their money”. While the new company “will be saddled with $55bn of debt”, Zaslav believes that by 2023 it will be generating $8bn of free cashflow, which should help it pay down borrowings quickly.

With Netflix’s subscriber growth “slowing” and the streaming market becoming “increasingly crowded”, the industry’s leaders “are still to be decided” and the new company “could prove to be a strong contender for the streaming crown”, says Ben Woods in The Daily Telegraph. However, it means that its competitors, including Comcast, are now faced with “a decision to make”. This is because many Comcast investors believe that it should follow suit and split its “huge broadband network” from its media empire which includes “not only Sky but NBCUniversal in America”.

Dr Matthew Partridge

Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.

He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.

Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.

As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.

Follow Matthew on Twitter: @DrMatthewPartri