AT&T Strikes $43 Billion Deal With Discovery To Launch New Streaming Giant

However, even though AT&T's shareholders will retain majority control over the new company, Discovery's management will control the new company.

As the FT points out, the deal "represents a humbling retreat for AT&T, which ran up one of corporate America’s biggest debt piles in a gamble to become the world’s biggest vertically integrated content and distribution company. "This should put an end to the debate about synergies between content and distribution," said Jonathan Chaplin, analyst at New Street Research, who called the deal "complete capitulation".

AT&T's board of directors met Sunday to approve the deal, which is expected to be announced in the coming days.

The combination would merge one of Hollywood’s most valuable catalogues — spanning the Warner Bros film and television studios, the HBO network and a portfolio of cable channels including CNN — with Discovery, which has had success with a new streaming service aimed at unscripted cooking and home renovation shows.

After years of watching Netflix dominate the streaming landscape, the world’s largest media and tech companies have sought to fight back with their own services. In the past year and a half, Disney, Apple, WarnerMedia, Comcast, Discovery and others have launched streaming platforms as they battle for a piece of the future of entertainment.

Two years ago, AT&T CEO John Stankey and Discovery head David Zaslav discussed combining their programming into an $8/month streaming service which would exclude HBO, however, Disney's announcement that it would drop its Star Wars, Pixar, Marvel, and Disney Classics catalogue into a $7/month streaming service caused Stankey and Zaslav to scrap the plan. Instead, Stankey created HBO Max, combining HBO with the rest of WarnerMedia's programming.

Analysts noted that, now that AT&T has committed to a deal, a rival bid for Discovery from one of AT&T's media rivals might emerge. Writing before the announcement of the deal, Citi analyst Jason Bazinet said he could imagine "several other potential suitors entering the fray" for Discovery or to propose a competing merger with WarnerMedia. "We would not rule out Comcast, Disney, or ViacomCBS getting involved," he wrote. To be sure, the two companies included termination fees under the deal that would see AT&T pay $720M (and Discovery $1.8 billion) if the deal falls through.

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