Discovery Inc. CEO David Zaslav expects to acquire millions of new streaming subscribers after a merger with AT&T is approved in 2022.
The merger will result in a new company that houses HBO Max, Disney+ and Discovery+ along with other streaming services and networks. The new company plans to compete with the current major streaming services; Netflix, Apple, Amazon, Hulu and Comcast.
Zaslav told investors that he anticipates the new standalone company could gain up to "400 million" subscribers although the timeline for reaching those numbers remains unclear.
HBO Max, HBO and Discovery+ combined have a 78.9 million global subscriber base compared to Netflix and Disney+ who have over 200 million and 100 million global subscribers, respectively. Meaning even combined, this new media company will be smaller than its rivals.
For more reporting from the Associated Press, see below.
It is a major directional shift for AT&T, which squared off with the Justice Department less than three years ago in an antitrust fight as it acquired Time Warner Inc. for more than $80 billion. Now AT&T will shift its focus back to telecoms.
It's not immediately clear what the new company will mean for customers, but it will likely allow the bundling of streaming services. For example, Disney offers its viewers Disney+, Hulu and ESPN. A standalone streaming service for CNN is also a possibility.
The deal is unlikely to mean changes for customers of AT&T, HBO Max and Discovery+ in the short term. WarnerMedia is continuing with its plans to expand the service, including a launch in Latin America in June, and a rumored $10-a-month ad-supported version of HBO Max expected to be announced this week.
It's the second time this year that AT&T has calved off a major acquisition as it navigates a rapidly evolving media landscape. In February, the company spun off satellite TV service DirecTV for a fraction of the $48.5 billion it paid in 2015.
If the deal goes through, AT&T shareholders would own 71% of the new company, and shareholders of Discovery would own 29%. AT&T would get $43 billion in cash, debt securities, and WarnerMedia would retain certain debt.
AT&T first sought to acquire what was then called Time Warner in a bid to control both sides of the entertainment process: the broadband and wireless services that help deliver entertainment to homes, and the entertainment itself. It was able to bundle free HBO Max subscriptions with its phone service, for example. But the cost of maintaining a competitive streaming service became a burden.
"When they acquired Time Warner, the vision was to have this kind of mega company that will have a seamless backbone between the content side and the broadband side," added CFRA analyst Tuna Amobi. "That vision clearly has not panned out."
AT&T has a massive debt load, and needs to invest more money as it builds out next-generation 5G wireless networks — wireless is its core business. It said Monday that it plans to increase capital investments for 5G and fiber internet.
The new company will bring together more than 100 brands under one global portfolio, including DC Comics, Cartoon Network, Eurosport, Magnolia, TLC and Animal Planet.
That likely means layoffs as the companies consolidate.
The new company will have a 13-member board. Seven will initially be appointed by AT&T, including the chairperson. Discovery will initially appoint six directors, including Zaslav.
The deal is expected to close by the middle of next year but still needs approval from Discovery shareholders. AT&T stockholders don't need to vote on the transaction.
Shares of Discovery Inc. jumped 3 percent to $36.73 Monday. AT&T shares rose 4 percent to $33.51.
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