TV Answer Man, I saw the Discovery-AT&T news today and I am confused. Why did AT&T spend all that money on DIRECTV and Warner and HBO and just turn around and sell it for less money? What are they thinking? — Frankie, Dallas.
Frankie, first of all, AT&T is not selling off DIRECTV, or Warner Media, the company that includes HBO and the Turner cable networks (TNT, TBS, CNN, Cartoon Network, etc). The telco is selling a minority stake in each which allows AT&T to keep control of both entities.
(In AT&T’s deal for DIRECTV, it will keep 70 percent of the satcaster while private equity firm, TPG, will assume 30 percent ownership. In the company’s merger with Discovery, which was announced today, AT&T will keep 71 percent with Discovery taking 29 percent.)
But what AT&T is doing in both transactions is turning over operational control of both DIRECTV and Warner Media to other companies. TPG is expected to wield significant influence over the new DIRECTV while Discovery CEO David Zaslav will become the chief of the new Warner Media/Discovery company when the deal closes, likely sometime next year.
That is why AT&T has taken both actions. The telco has finally conceded that it’s simply not good at running media companies.
Yes, AT&T paid $49 billion for DIRECTV and $85 billion for Time Warner with ambitious announcements accompanying both that said they would revolutionize the industry. But six years after the DIRECTV deal, AT&T has lost more than 10 million DIRECTV and U-verse customers. And three years after the Time Warner transaction, HBO Max, the unit’s highest-profile service, still trails Netflix and Disney+ (and others) largely because of self-inflicted errors. (HBO Max’s first year was plagued by carriage disputes with Roku and Amazon’s Fire TV, and consumer confusion over multiple HBO-named services, including HBO Now and HBO Go.)
With the TPG and Discovery moves, AT&T can still use DIRECTV and the Warner media properties to boost its telecommunications business. (AT&T currently offers free HBO Max with new DIRECTV subscriptions, and expanded phone service.). But it doesn’t have to worry about running them. (Or, perhaps I should say, running them into the ground.) The company also will get some debt relief with each deal, another significant reason for the deals.
It’s not easy for any corporation to acknowledge its failings in public quite the way that AT&T is now doing. But the company’s executive team, including CEO John Stankey, deserves some credit for finding a way out of a mess triggered by hubris and short-sightedness. It remains to be seen if each deal will ultimately be regarded as a success. But AT&T had little choice to make them.
Frankie, hope that makes sense. Happy viewing, and stay safe!
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— Phillip Swann