It never made sense for AT&T to buy WarnerMedia. Now it’s undoing its $100 billion deal.

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Game of Thrones
WarnerMedia’s Game of Thrones. | HBO

The people who brought you Game of Thrones are merging with the people who bring you 90 Day Fiance.

Five years ago, one of the world’s biggest phone companies announced it was buying one of the world’s biggest media companies. Now it wants a do-over: AT&T wants to combine WarnerMedia, the company that owns HBO, CNN, and the Warner Bros. movie studio, with Discovery Inc., the cable TV programmer that owns the Food Network and HGTV.

The short version: The people that brought you Game of Thrones and the people that brought you 90 Day Fiancé are getting together.

This won’t affect you, the person who likes to watch those shows, very much in the near future. But it underscores the upheaval in the media industry, as companies that used to dominate the landscape are scrambling to catch up with the new media giants — which are tech companies.

We’ll do the longer version, including the rationale for this, in a minute.

But first, let’s just take a second to marvel at the things you can do if you run a really big, really valuable phone company: You can tell the world that the future of your business involves combining your business — selling subscriptions to broadband and wireless phone service — with someone else’s media business, and spend tens of billions of dollars doing that. And then you can announce, with a shrug, that you’ve changed your mind.

That’s what AT&T is doing now. In 2016, the phone company said it was going to pay more than $100 billion (including debt) to buy what was then called TimeWarner, and spent years fighting the Trump administration in court to get the deal done.

The deal raised eyebrows from the get-go, because TimeWarner had already been through a disastrous merger with an unrelated company — that would be AOL — during the first dot-com boom, and supposed synergies between those two never materialized.

But if you asked AT&T executives to explain why merging a media company with a non-media company would be different this time around, you would get bristly non-answers. Now we’re getting the real answer: Adding TimeWarner to AT&T didn’t help AT&T sell more wireless or broadband plans. And it didn’t help TimeWarner compete against Netflix and the rest of the internet.

Which is why AT&T is essentially unmerging WarnerMedia, and merging it with an actual media company, where there might actually be some synergies.

If this undoing sounds familiar, there’s a good reason. We’ve seen it happen twice this year alone.

In February, AT&T announced that it was unmerging with DirecTV, the satellite TV business it bought in 2015 for $67 billion, and is now worth something less than $16 billion.

And last month, Verizon announced that it was unmerging with AOL and Yahoo, two former internet powerhouses, in a deal that valued those companies at $5 billion — about half of what Verizon had paid for them a few years earlier.

All of which is to say: Next time someone gives you grief at work for screwing something up, you can tell them that at least you didn’t waste tens of billions of dollars on a failed media M&A strategy. (You should also consider working as an M&A lawyer or banker, where you get paid to do these deals whether they make any sense or not.)

So. Merging WarnerMedia with AT&T didn’t work. Will merging with Discovery work? Mmmmmmaybe.

  • At the very least, it helps WarnerMedia, which is trying to compete with Netflix and Disney for a share of the streaming video subscription market, add weight and heft. Both WarnerMedia and Discovery have their own streaming video subscription services — HBO Max and Discovery+ — and putting both of them under the same roof can be more efficient. And there isn’t a ton of overlap in the services: HBO Max is HBO shows plus WarnerMedia movies plus an assortment of other stuff. Discovery Plus is a collection of reality TV shows. The new company can market the two services separately, but it will undoubtedly roll out a merged version one day.
  • Both companies also own large cable TV operations — WarnerMedia’s Turner group includes CNN, TNT, and Cartoon Network; Discovery has everything from the Travel Channel to Animal Planet. Those businesses are in permanent decline — as WarnerMedia CEO Jason Kilar has said publicly — but in the meantime, they still reach tens of millions of people and throw off a lot of cash. And combining the backroom operations of those networks can save more money along the way.
  • Wall Street is very excited about companies like Netflix, and now Disney, that can argue that they are streaming video companies. But it never bought AT&T’s argument that it was a streaming video company — it valued it as a slow growth/no growth phone company that happened to own some media stuff. But now, in theory, investors who want to invest in WarnerMedia can do that, so maybe the new company will end up being worth something like the money AT&T sunk into it to begin with.

Let’s pause here and note that this merger isn’t a forgone conclusion, because AT&T and Discovery are proposing it in 2021 — a time when regulators around the world are newly interested in slowing or stopping big companies from getting bigger, just for the sake of getting bigger.

AT&T had to spend a couple years fighting to get its WarnerMedia deal done, but that fight seems like it had a lot to do with the fact that Donald Trump didn’t like CNN. (Trump and his regulators had no problem with Rupert Murdoch selling most of his Fox empire to Disney.) Now AT&T and Discovery will have to explain why combining two of the biggest video programmers in the world won’t eventually result in less choice and/or higher prices for consumers, to a much more skeptical audience.

Free preview: AT&T and Discovery will say they need to do it to compete with Netflix, Amazon, Facebook, Apple, TikTok, and anything else on the internet. And the truth is, they’re right. A deal like this would have been jaw-dropping a few years ago. Now, it’s going to seem inevitable, and also not that big a deal.

Especially to someone like you, who is likely spending your screen time on a combination of paid services like Netflix, and free ones like TikTok, YouTube, and Instagram. It’s possible, one day, that if you pay for HBO Max, or Discovery+, you’ll see some effect from this.

Maybe you’ll get a discount for buying both services — or maybe the merged company will raise prices on both services, because they can. Perhaps you’ll see some crossover content, like a Food Network show dedicated to red sauce recipes from The Sopranos. But unless you work at WarnerMedia, Discovery, or their competitors, this is a megamerger you may not ever notice. Which tells you everything you need to know.

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