The WarnerMedia-Discovery merger will set off a scramble of entertainment consolidation

Maxing out.
Maxing out.
Image: Photo by Presley Ann/Getty Images for WarnerMedia
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In the age of Netflix and tech giants, traditional media companies have decided that they must join together or die. The WarnerMedia-Discovery merger announced yesterday likely won’t be the last union of major content providers.

AT&T, just three years after buying Time Warner for $81 billion (and renaming it WarnerMedia), plans to spin off the entertainment company and combine it with Discovery, the owner of popular unscripted US TV channels like Food Network and TLC. AT&T will receive $43 billion in the deal. Its shareholders will own 71% of the new company, while Discovery’s investors will get 29%. Longtime Discovery CEO David Zaslav will lead the still-unnamed joint venture.

The company, if approved by US regulators, would instantly become one of the largest content providers in the world, and be in a position to take on Netflix, Disney, Amazon, and Apple for global streaming superiority. It’d marry WarnerMedia’s strength in scripted content—led by awards darling HBO and the Warner Bros. film studio—with the unscripted reality TV empire Discovery has built through shows like Chopped, 90 Day Fiancé, and Naked and Afraid. WarnerMedia and Discovery generated $41 billion in combined revenue last year—$16 billion more than Netflix. Together, they will spend about $20 billion on content this year—$3 billion more than Netflix’s 2021 spend.

“We think, combined, this makes us the best entertainment company in the world,” Zaslav said on a call with reporters yesterday.

Still a ways to go to catch Netflix

But Netflix, with more than 200 million subscribers, still has more global reach. WarnerMedia’s HBO Max streaming service, and Discovery’s platform, Discovery+, have roughly 60 million subscribers between them. They also reach more than 70 million cable TV households in the US, but that number shrinks every year, and there is certainly some overlap between them and the companies’ streaming subscribers.

In order to truly compete with Netflix on a global scale, media companies need both a willingness to spend and also an infrastructure to support a push outside the US. Netflix is available in almost every country on Earth, while HBO Max and Discovery+ are offered in only a handful of countries. As a combined entity, their global streaming expansions could come much easier. Zaslav said his goal is for the new company is to eventually reach 400 million homes “over the long term.”

Who’s next to merge

Already, other media companies appear to be working behind the scenes to find new partners. According to the Information, Amazon is considering a deal to buy MGM, the studio behind the James Bond and Rocky franchises, among others. Amazon’s interest in MGM is purely its intellectual property: The e-commerce giant doesn’t need MGM’s resources, but it would love to own—and expand on—properties like Bond, and use those as selling points to potential streaming subscribers around the world.

NBCUniversal may partner up as well. Rumors have swirled for months that NBCU was interested in joining forces with WarnerMedia in order to better compete with Netflix. Now that that’s seemingly off the table, ViacomCBS has emerged as a candidate for consolidation. Both companies have recently launched streaming services (NBCU’s Peacock and ViacomCBS’ Paramount+) and would benefit from the other’s content libraries. But, as it stands now, neither poses much of a threat outside the US to Netflix or Disney, which, of course, made a mega deal of its own in 2019 when it acquired Fox’s entertainment assets.

If NBCU and ViacomCBS don’t merge themselves, they’ll likely look to scoop up some of the other content providers that, for now, remain independent: AMC Networks, Lionsgate, Sony, among others. Sony has decided it’s not interested in playing the global streaming game, and instead has turned into something of a mercenary, selling its content—which includes Spider-Man and Ghostbusters—to several other companies, including Netflix and Disney. That’s one way toward sustainability for the smaller media companies, but it is a considerably lower stakes play.

There are still lots of unanswered questions about the proposed WarnerMedia-Discovery deal. Zaslav wouldn’t state his plans for streaming—whether HBO Max and Discovery+ will combine, stay completely separate, or get bundled together for at one price. It’s also unclear how much say Zaslav or anyone else at Discovery will have over WarnerMedia content (and vice versa), or who, exactly, will be in charge of what at the new company.