How AT&T’s spin-off of WarnerMedia will impact telecom and media
AT&T has decided it’s better off focusing on its telecom business and has announced it’s spinning off WarnerMedia and merging it with Discovery. While AT&T will maintain a 71% stake in the new company formed by WarnerMedia and Discovery, it will not have operational control (similar to its recent spin-off of DirecTV), which will free up resources for its connectivity business. Here’s my take on what the move will mean for the industry.
5G gets better, faster, as telcos realign resources to the core business of connectivity
AT&T’s decision to spin-off Warner Media is the latest in a string of telco decisions to drop or sell off their video assets. AT&T started the 2021 activity in February, when it sold a minority stake in DirecTV, AT&T TV and U-verse to TPG. In March 2020, T-Mobile abruptly announced that it would shutter its Tvision streaming TV service, a mere five months after launching it. Earlier in May, Verizon announced it would sell its media business, consisting of AOL and Yahoo assets. With the spin-off of WarnerMedia, created after AT&T bought Time Warner in 2018, the trend continues.
Ultimately, this means that the US Big Three are putting the focus squarely on connectivity. Expect 5G network acceleration—both increased availability and upgrades to the existing 5G infrastructure—as these carriers compete to provide the best service to US consumers and businesses. This could also mean greater investment in fiber and fixed wireless services to expand residential connectivity, as well.
Expect a bundled services approach a la Disney+
The combined WarnerMedia/Discovery will likely maintain several separate streaming services (including HBO Max, Discovery+, and new ones), and bundle them together, as Disney does with the Disney+/Hulu/ESPN+ bundle. I would be surprised if the new company rolled HBO Max and Discovery into one, given the strong brand identities of each, which could become diluted if rolled together. Plus, a service bundle approach helps create the idea of better value and drive loyalty.
New marketing synergies make it more cost-effective to drive awareness and upsell
Through the merger, there will be many marketing synergies, of course, which will drive some expected tactics. These include: heavy TV advertising for the streaming services/bundle across the wide portfolio of WarnerMedia and Discovery networks; ads for the streaming services running across network websites, podcasts, and other digital assets; the company taking advantage of a wider pool of users to engage and cross-sell, and more. Plus, given that AT&T will still own the majority stake in the new company, WarnerMedia/Discovery will likely utilize AT&T retail locations for additional visibility.
The new WarnerMedia/Discovery may drive more live news and sports OTT
It remains to be seen how CNN news content and Turner sports content could be treated under this new company. But if the goal is to replace the cable bundle, as Discovery President and CEO David Zaslav has suggested, then it seems likely that the new company would prioritize streaming news and sports. The company will build off the recent announcement of NHL content coming to HBO Max—the first live sports to come to the platform. Of course, whether that content resides on that particular platform – or somewhere else — remains to be seen.
The free HBO Max included with AT&T wireless or broadband service isn’t going anywhere
Since AT&T maintains a 71% share of the new company, there’s no indication that AT&T wireless or internet customers will lose the perk of free HBO Max. Verizon, however, likely won’t be offering free Discovery+ to its subscribers much longer, though. Discovery+ could become a perk for AT&T customers, instead, and Verizon’s relationship with Disney (it already offers free Disney+ depending on service tier) may grow deeper.
The new WarnerMedia/Discovery will be the tip of the iceberg in media consolidation this year
With so many more consumers embracing streaming, the consumer-unfriendly fragmentation of the market, and the leadership of Netflix and Disney in the space, expect more companies to join forces to better compete. (Already, the same week as the WarnerMedia announcement, rumors are flying that Amazon will purchase MGM.) Consumers should be prepared to see fatter content bundles and higher prices as more content goes to streaming.