AT&T is spinning off WarnerMedia to Discovery, just 4 1/2 years since it announced it was acquiring Time Warner (as WarnerMedia was then known) and just three years since the deal actually closed, following exhaustive regulatory challenges and litigation. For AT&T, the U-turn in strategy is a tacit admission that it didn’t realize the benefits it touted as the rationale for the deal.
That’s no surprise because, as I said at the time, the benefits were illusory and were completely out of synch with realities that broadband, streaming and connected TV were driving. The press release announcing the Time Warner acquisition was filled with corporate gobbledygook such as “The future of video is mobile and the future of mobile is video” and “Combined company positioned to create new customer choices - from content creation and distribution to a mobile-first experience that’s personal and social.”
AT&T believed there was still merit to the idea that distribution and content companies belonged under the same corporate roof. That was in fact a valid strategy when pay-TV distributors controlled all the shelf space to the home, deciding which TV networks to carry and how they’d be compensated. But by 2016 broadband had blown up this “closed network” approach. Instead empowered consumers just needed a wired or wireless broadband connection to pick and choose which content they wanted.
All the signs of this were on full display: Netflix already had over 86 million global subscribers, YouTube proved that independent creators could aggregate massive audiences, Roku, Fire TV and other CTVs were fully mainstream, cord-cutting was gaining momentum, etc. Outside of video, the Internet itself had already taught the world that once consumers could use any browser, app or device to access exactly what they wanted, no corporate entity could control their choices.
But AT&T ignored all of this and plunged forward with its $100 billion+ deal for Time Warner. And sure enough, AT&T hasn’t benefited from owning Time Warner, and Time Warner hasn’t benefited from being owned by AT&T. In fact, aside from HBO subscriptions being used as bait for wireless (which could have been accomplished in marketing deals, as we’ve seen with Disney+ and Verizon, for example), I don’t believe there’s a single example the companies have shared in the past three years of how they’ve been better off together.
Mercifully for shareholders, AT&T has realized how mistaken its approach was and has pulled the plug. In spinning off WarnerMedia to Discovery (and previously selling off DirecTV, whose acquisition by AT&T was epically backward-looking), AT&T is returning to its roots as a telecom/connectivity company, its media fever dream over. It is incalculable how many person hours and AT&T financial resources were wasted in these pursuits.
Discovery-WarnerMedia makes far more sense, as a pure-play content company seeking increased scale in a globalized direct-to-consumer world. On the revenue side, this means a streaming bundle of discovery+ and HBO Max, more leverage in negotiations with new gatekeepers like Roku and Amazon and a better pitch to advertisers who want improved targeting and return on investment. On the cost side this means cost-cutting and efficiencies in production, marketing, distribution and technology.
For Discovery, there is a lot to digest in WarnerMedia, and it will take a long while for the full benefits to be realized. But at least there are real benefits to be realized. That’s far more than can be said for AT&T’s acquisition of Time Warner.