Breaking Up is Hard to Do
Not this time.
With this mornings announcement of AT&T spinning off its WarnerMedia group and having it merge with Discovery, AT&T is finally ending the Randal Stephenson era and focusing on what it does best, telecommunications.
AT&T throughout the years has dipped a finger into other businesses only to come back with broken knuckles and you would hope they would have learned something from this.
From the start, this wasn’t a great move by AT&T. They overpaid for Time Warner and spent the better part of the last four years figuring out how to get rid of it. They spent millions and fought Trump’s Justice Department to get this deal approved. The ink was barely dry when they realized that the synergies they thought were there really weren’t and they were burdened with an extremely high debt load.
Don’t get me wrong, TimeWarner was the creme de la creme of media assets and with the right stewardship, they would have continued to be so. AT&T was not that company. AT&T at the time was still trying to figure out what to do with DirecTV. Another company that AT&T overpaid for. The company wanted to be the one stop shop for all your entertainment and communication needs.
The problem was, and still is, management in entertainment is different than it is in telecommunications. Free wheeling, free spending never sat well with the Men and Women in Dallas and that created internal frictions. Quality of content didn’t suffer all that much but the quantity did. While Warner studios was still producing blockbusters, it was producing less of them. CNN was still producing quality content but they were shutting offices around the World and relying on third parties for some of their content. HBO was still doing high quality dramas but there were less of them and they were falling behind Showtime in edgy material. All of this had to do with the bean counters in Dallas that know where every laptop, cellphone, pen and piece of paper with the company’s name on it are.
The two cultures just didn’t fit and even though WarnerMedia was profitable, it still was a drain on the balance sheet and something had to give. Hence, the discussions with Discovery.
Discovery on the other hand is a company that has always thought outside of the box. They created content for every demographic on Earth and sold advertising to anyone and everyone. They have their own formula for success and it works and that stems from the unusual leadership of David Zaslav. He is as comfortable on Page Six of the Post as he is on the front page of the Times Business section. The company is also very profitable but does not have the debt burden that AT&T is dealing with so Zaslav’s ship may be freewheeling but they do it in a way that does not leave the company exposed to interest rate fluctuations. They create content that costs less to produce and can generate a loyal following. A following that certain advertisers covet. Outside the box? I think they have created a whole new box.
The best part of this deal is having David Zaslav run the whole show. While AT&T shareholders will own a majority interest, they should give him the room to maneuver the way he sees fit. He is a shrewd businessman that doesn’t allow normal conventions to hinder his thought processes.
The combining of these two businesses will create a company that can compete with Netflix and Disney on level terms. It will be profitable from the onset and depending on how they integrate all the disparate networks, it could match Disney for content, viewership and subscriptions.
One last thing, where is CBS/Viacom or whatever they call themselves these days? Obviously, this creation of a new entity will put a major focus on Viacom and what will happen to them? Is Comcast snooping around? Could some underdog network like Sinclair be looking at them? Could some tech company with tremendous cash flow be looking at them. The next three to six months could be very interesting indeed.