In 2018, the telecommunications conglomerate AT&T purchased the media company Time Warner for a whopping $85 billion. Along with placing the telecom giant in prime position to reshape the entertainment world, the enormous price tag associated with this deal also saddled AT&T with a huge amount of debt. The company hoped that streaming services like HBO Max would bring in new customers and revenue streams that would justify its massive investment.

Three years later, however, it appears that AT&T’s merger with Time Warner did not turn into the money maker that many hoped it would be. As a result, this week AT&T announced that it would spin off WarnerMedia into its own company which will then be sold and merged with Discovery. This means that Warner properties such as HBO and CNN will join Discovery-owned networks like HGTV, Food Network, and Oprah Winfrey’s OWN. The new company’s wide slate of content could place its value over $100 billion, putting it in the same league as entertainment giants like Disney and Netflix.

One of AT&T’s central problems was building its streaming services into profitable enterprises. Like other streaming platforms, HBO Max lost money as it kept prices low in order to draw in as many new subscribers as possible. Meanwhile, Discovery’s cable networks have remained highly profitable thanks to established deals with cable providers and advertisers. Channels like TNT and TBS also earn a ton of revenue for Discovery through deals with sports leagues like the NBA and NCAA. Analysts expect that sports revenue will become especially important for the upcoming Warner-Discovery conglomerate as it seeks to find profitability where AT&T could not. 

Questions:

1. Why is AT&T selling WarnerMedia and merging the entertainment company with Discovery?
2. Why are cable networks often more reliable money makers than streaming services like HBO Max? 

Source: Edmund Lee and John Koblin, “In a Deal With Discovery Hatched in Secret, AT&T Sheds Its Media Business,” The New York Times, May 17, 2021. Photo by Tdorante10.