Billionaire John Malone will serve as a director of the new media company created from Discovery and WarnerMedia’s entertainment assets.
Getty ImagesFor watchers of cable TV billionaire John Malone, today’s announcement that AT&T is bailing on its sideways attempt at becoming a media company comes as no surprise. Known as a swashbuckling dealmaker in the industry, Malone exploded into prominence in 1999 when AT&T paid $48 billion for Tele-Communications, the cable giant he built, lifting him out of cable’s engineering shadows and landing him a starring role as a content titan mentioned alongside the likes of Rupert Murdoch and Barry Diller.
Malone is capitalizing on AT&T’s misguided media dalliance and is poised to become a prominent shareholder and board member of a newly formed business that combines AT&T’s WarnerMedia’s collection of film, TV, sports and news assets with Discovery Inc.’s unscripted shows and global sports holdings. While the transaction is an about-face for AT&T CEO John Stankey, who vowed to create a media powerhouse out of the telecommunications giant, it marks the latest in a string of content deals for Malone, who holds 28% voting control of Discovery.
Malone spoke every day with David Zaslav as the Discovery chief executive laid plans for the ambitious deal. As with many a business arrangement, this one germinated on the links. Zaslav and Stankey planned to meet at the AT&T Pebble Beach Pro-Am golf tournament in February. The pandemic scuttled those travel plans, and a house-bound Zaslav began texting Stankey in what “ended up in a two hour conversation about the future of media.” That led to a series of discrete meetings at Zaslav’s Greenwich Village brownstone — “an exhilarating and a truly bonding experience” — that culminated in today’s agreement.
“John [Malone] sees the opportunity to make one last killing,” said one executive who has worked closely with the cable mogul. “Look, you put the two of them in front of a business chessboard, which John are you going to put your money on—Stankey or Malone?”
AT&T’s investors welcomed the arrival of Malone, whose net worth Forbes estimates at $8 billion—and Zaslav, a media veteran who took Discovery public in 2008, led its acquisition of Scripps Network Interactive and will be the CEO of the combined business. The telecom company’s stock rose 74 cents to $32.95 in late morning trading.
“This new company makes huge sense,” said Zaslav in an email this morning to employees.
The announcement made no mention of Warner Media CEO Jason Kilar, a tech entrepreneur who rattled the insular entertainment industry in a series of moves aimed at “breaking” entrenched business models. Kilar, perhaps sensing the shifting ground, has been increasingly visible, delivering a keynote at the MoffettNathanson Media & Communications Summit in New York and granting an interview to the Wall Street Journal.
Now, at 80, Malone has a seat at the table with what could be one of the most formidable media companies on the planet. The $43 billion deal brings together AT&T’s Warner Bros. studio, HBO, CNN and TBS and Discovery’s array of cable channels, including HGTV, Food Network and the Discovery Channel. Together it represents a broad collection of scripted and reality shows that represents projected sales of $52 billion this year, sandwiching it between streaming colossus Netflix and the world’s leading entertainment company Walt Disney, which brought in $65.4 billion last year.
The combined business will have one of the deepest libraries in the world, with nearly 200,000 hours of content—including HBO’s Game of Thrones, Cartoon Network’s Adventure Time, HGTV’s Property Brothers and Food Network’s Diners, Drive-Ins and Dives. Its streaming services would boast 60 million subscribers across HBO, HBO Max and Discovery+, which eclipses the likes of ViacomCBS and its 36 million global streaming subscribers across Paramount+ and Showtime.
Veteran analysts Craig Moffett and Michael Nathanson said Discovery+ would provide a more natural streaming home for CNN and Turner sports, which seemed out of place among HBO Max’s roster of movies, animation and scripted series.
“John Malone, in the very early days was there to build CNN with Ted Turner, and so there's a tremendous amount of pride, as someone who started in this business 30 years ago. CNN was the beacon,” said Zaslav. “It's the beacon today, and it should be the beacon everywhere in the world so we're going to come in and we're going to be supportive.”
In addition to the apparent sidelining of Kilar, the deal marks a stunning reversal by AT&T’s Stankey, the self-described “Bell-head” who championed the telecommunications company’s move into entertainment. Faced with a heavy debt load and the prospect of investing billions of dollars on infrastructure to build out 5G mobile phone networks, AT&T has begun shedding its earlier entertainment bets.
In February, AT&T sold a stake of its pay-TV business to the private equity firm TPG, forming a new business that would jointly run DirecTV and AT&T TV services. TPG paid $1.8 billion in cash for a 30% stake in the newly formed entity—a deal that valued the company at $16.25 billion.
That’s well below the $48.5 billion the Dallas-based AT&T paid in 2015 to acquire DirecTV with visions of promoting video and phone service to customers. AT&T sold off niche streaming services such as Crunchyroll and simply shuttered others, like FilmStruck, which was dedicated to art-house films from the Criterion Collection.
Moffett and Nathanson said it was almost inevitable that AT&T would abandon its media ambitions.
“AT&T’s balance sheet allowed neither the aggressive investment required for HBO Max nor the 5G wireless push (nor, for that matter, for the consumer fiber business),” Moffett and Nathanson wrote. “Ultimately, they had no choice. The die was cast even before the ink was dry on their initial acquisition.”
Stankey described the deal as advantageous to AT&T’s shareholders, who would receive stock representing 71% of the new media company. He said the transaction would afford investors the best of both worlds that gives them part of a media company with a global portfolio of brands, even as AT&T focuses its capital resources on its core mobile and broadband businesses.
In a call with the press, Stankey acknowledged a looming cash crunch even as HBO Max was finally gathering momentum and preparing to enter a new phase as it launches a new, ad-supported streaming product and expands into Latin America. “It became clear to me that we were going to need a different capital structure to get that done,” he said. “And it was important to not do something in my decision making to cause anybody to slow down in their execution.”
