Three years ago, I wrote here:
“Discovery must be in play after AT&T’s recent takeover of Time Warner with its Warner Bros, HBO and Turner programming assets.” (Discovery for Sale, June 20, 2018)
ATT confirmed today that it will spin off its renamed WarnerMedia unit into Discovery Inc.
My Initial Takeaways:
1.Discovery Transformed
A leading financial analyst writes:
“The merger is clearly transformational for Discovery, taking an unscripted/reality TV cable network group and adding in one of the largest movie and TV studios, more diversified cable networks and most importantly HBO/HBO Max with its aggressive push into DTC (subscriber) streaming.” Lightshed Partners
- Discovery CEO David Zaslav gets to run a much bigger company that is far better positioned than the assets he brought to the table.
- He adds HBO, CNN, Cartoon Network and the Warner Bros. Studio to his Discovery / Scripps portfolio.
- He was expected to be a seller!
- The never-to-be-under-estimated Zaslav is a big winner.
2.Discovery: Tied to Horse-and-Buggy Era?
- However: The new Discovery / WarnerMedia venture is still primarily an “old model” channels company.
- 75% of combined 2021 earnings (EBITDA) comes from the very linear cable networks that are in decline as they lose audiences to streamers.
- The new Discovery may be even more tied to cable’s melting ice cube of cord-cutters and shrinking revenues.
3.Discovery: Now Fueled Up for the New Model?
- ON THE OTHER HAND: Those 75% of combined enterprise earnings are mainly generated by long-term affiliate contracts.
- They are the gasoline pipeline – carrying steady monthly fees at scale.
- They allow the new Discovery to invest in building out its Discovery+ and HBO Max streaming platforms, and compete with Netflix and Disney+.
- (Alert: We learned a lot this month about surprise disruptions of pipelines.)
4.Documentary Buyers: More Seats on the Same Bus
The combined unit includes at least three prestigious and distinctive buyers of classic, award-winning documentaries and factual programs:
- HBO Documentary Films
- CNN Films
- Discovery Channel / Discovery+.
- HBO Max has also announced unscripted green lights.
It’s a big unknown how these documentary buying teams and brands will evolve in the new structure.
(Don’t miss my Sunny Side of the Doc Meet The Executive presentation with Discovery’s SVP Howard Swartz. (Tuesday June 25, 1130am ET)
5.ViacomCBS: Left Behind in the Parking Lot?
The likely loser in this reordered competitive landscape is Viacom/CBS.
- Discovery was a potential merger partner, and now, combined with WarnerMedia, the new unit will dwarf Viacom.
- There’s no obvious partner in sight for a scaled up and competitive ViacomCBS.
- Their Paramount+ streamer is in its early days, though with momentum from CBS All Access’s success.
- ViacomCBS’s challenging strategic outlook includes Smithsonian Networks, its jv with The Smithsonian Institution, and for 10+ years a steady buyer of curated Factual programs.
Watch out for more coverage here.
Comment: Layoffs are a certainty
“Your instant analysis of the Discovery-Warner “merger” brought up several points that I didn’t see anywhere else. Especially the part about both entities being based on traditional models and the overlap in documentary units. There’s only one thing certain: layoffs. In general, is there anything in the deal that is good for producers or even consumers? Michael Cascio
