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It’s not that the media world and Wall Street didn’t expect AT&T to spin off WarnerMedia — the consensus has been that this experiment has not been going well. But a deal appears to be coming both faster than expected and not in the form that many anticipated.
It appears that AT&T is about to do a deal with Discovery that top sources believe will mean the ascent of Discovery president and CEO David Zaslav, 60, and a likely changing of the guard at WarnerMedia. Caveat: The words you are about to read involve speculation, but not uninformed speculation. With that, a few takeaways:
Deal or no deal, this gets the ground in Hollywood shaking. Before it emerged that Discovery was in the game, the betting had been that NBCUniversal would make off with the WarnerMedia assets, including premium cabler HBO, Warner Bros. Studios and Turner networks like TNT and TBS. A decision to make an offer would have been up to NBCU owner Comcast, which may have hesitated and lost out on the chance. Now sources believe NBCU will turn its sights on ViacomCBS.
Whether or not that happens, says one knowledgeable source, depends on if ViacomCBS chairman Shari Redstone is a seller (she’d have to consider it, given the state of the media world) and if the deal — which would potentially bring assets including CBS and NBC, with their various news operations, under one roof, not to mention Paramount and Universal — can pass federal antitrust scrutiny. It would be sure to face a much harder look from regulators than a Discovery combination with WarnerMedia, and there is no doubt assets would have to be shed if such a marriage were attempted. Viacom declined to comment and Discovery and NBCU did not respond to a query.
On to the deal: Top media insiders say one of Discovery’s largest shareholders, Liberty Media chairman John Malone, 80, will have crafted a structure with what one calls “a brilliant tax dimensionality to it.” (Malone, who has been making deals in the telecom and media industries for decades, is known to seek out esoteric and occasionally underutilized pieces of tax law to minimize his and his company’s tax exposure. For example, Malone gushed in a CNBC interview about the “brilliant” tax structure for Liberty’s acquisition of Formula 1, a deal that included a tracking stock and shell companies spread across multiple continents.) These top insiders cannot see a world where the deal doesn’t put Malone in control, meaning Zaslav runs the combined entity. They do not see this as a promising development for 50-year-old WarnerMedia CEO Jason Kilar.
Malone has not hidden his questions about the AT&T/WarnerMedia streaming adventure. In 2018, he said this to CNBC’s David Faber: “I don’t know if AT&T is willing to write those massive checks, to play against the incumbents, Amazon, Netflix, and to compete with Disney on the margin for that third seat. If I was [then AT&T chairman Randall Stephenson], I would be scratching my head and saying, ‘When I bought HBO it was the crown jewel, it was what I wanted; now it is subscale. The question now is how much do I have to spend and how much income do I have to forgo for the next couple of years to build up?’” It appears that current AT&T boss John Stankey came to scratch his head about that, too.
Malone is known to be a media-world genius, but was it really that hard to anticipate that AT&T might have difficulty figuring out how to run a legacy media operation, especially when it is fighting battles on other fronts? AT&T is a telecommunications company and now appears to be one in the long list of outsiders to find that entertainment is hard, especially in pandemic-accelerated transformational times.
Saddled with debt, the company was warned by more than one of its own in-house entertainment-industry veterans (who found themselves kicked to the curb) that the spend required to launch a streaming service would be massive — far more than the parent would be willing or able to spend. (Asked about the possible spending crunch in a May 14 interview in The Wall Street Journal, Kilar responded: “Sounds juicy.”)
This appears to be the second big bobble for AT&T, which acquired DirecTV for $67 billion, inclusive of debt, in 2015 and this year agreed to spin it off (alongside AT&T’s own UVerse business) in a deal valued at only $16.25 billion. That’s a $50 billion haircut. It isn’t yet clear how the former Time Warner assets will be valued in a new deal with Discovery.
A source with knowledge says that two years ago, Zaslav proposed combining Discovery and HBO Max in a joint venture, but that Stankey nixed the proposal. Times have changed. Discovery’s streaming rollout for Discovery+ has been somewhat slow going, with the company disclosing in April that all of its streaming services combined have 15 million subscribers. Nonetheless, Zaslav told investors the rollout was “exceeding our expectations and demonstrating sustained momentum into the second quarter.”
Should all go forward, it is far from clear how the new company will be configured. One person rumored to be hungering for a bigger job at WarnerMedia is CNN president Jeff Zucker, 56, who is known to have locked horns with Kilar and who said in February that he will leave at the end of the year. Now the question is, will he?
It may be petty gossip to note that Zaslav is very good friends, golf buddies and Hamptons neighbors with Zucker. But industry insiders have noted this gossip. They also believe Zucker may have let Stankey know he was leaving if Kilar was staying. The CNN chief remains on very friendly terms with Stankey and was invited on the AT&T chief’s Augusta golf outing over the holidays even after announcing his plan to leave.
One associate thinks this deal may mean Zucker will stick around. “My intuition is he doesn’t want Jason Kilar’s job, believe it or not,” this person says. With oversight of CNN and Turner Sports, which just closed deals with the National Hockey League and Major League Baseball, Zucker may see running those businesses as “fun,” this person says, while “the HBO Max thing is really complicated, really messy.”
If a major changing of the guard is indeed coming at WarnerMedia, there will be schadenfreude. In the aftermath of AT&T’s acquisition of Time Warner, new management has purged the old guard, including veterans with a sense of how to run legacy media businesses. Some of those people, as well as others in Hollywood, have bristled at the certitude of Stankey’s chosen WarnerMedia boss, Kilar. Whatever big checks WarnerMedia has written to smooth over its decision to blindside Hollywood with its day-and-date streaming strategy in December, for example, the sting of it lingers. So does the purge of those who had spent careers building WarnerMedia assets.
“It wasn’t perfect, but it really was a cool place,” recalls one former insider, who says AT&T management “did not have to destroy the DNA” that made these places special before adding, “The shame of it. The arrogance.”
Alex Weprin contributed reporting.
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