You will be redirected back to your article in seconds

AT&T + Discovery: First Impressions on the Potential Merger

&T + Discovery: First Impressions on

It’s the move no one saw coming … and yet we should have all seen it coming.

There were no signs that AT&T’s WarnerMedia and Discovery were contemplating the merger Bloomberg reported Sunday was in negotiations, but the deal logic is clear: Consolidation is inevitable among the major players in the entertainment sector.

This potential merger/spinoff also shouldn’t come as much surprise because AT&T has shown its aggressiveness in the content world from the beginning. CEO John Stankey made bold moves when he ran WarnerMedia and set up his successor, Jason Kilar, to make even bolder moves, like dropping the Warner Bros. 2021 movie slate in U.S. theaters and on HBO Max simultaneously.

And AT&T being the first to move on consolidation also makes sense: The conventional wisdom is there are only so many streaming services the average consumer will pay for. Neither AT&T’s HBO Max or Discovery’s Discovery+ can be said to exist in a first tier currently occupied by Netflix, Disney+ (including ESPN+ and Hulu) and Amazon’s Prime Video.

HBO Max is as good a contender for the top tier as any player out there on the second tier, which also includes Comcast’s Peacock, Apple TV+ and ViacomCBS’ Paramount+. Any of these three entities could have easily been first movers on this kind of M&A as well.

Just imagine what Shari Redstone or Jeff Shell is thinking right now. They are the decision makers to watch next.

Discovery was always going to be a prime acquisition candidate. Discovery+ has gotten off to a respectable start but never had a chance to crack the first-tier streaming category. Nevertheless, its unrivaled portfolio of unscripted content is a great companion to WarnerMedia’s scripted prowess.

Next question: Do Discovery+ and HBO Max continue to exist as separate entities, or does one absorb the other’s assets?

Next, next question: Would CEO David Zaslav stick around in a combined pairing, or would he report into Kilar?

Ultimately, this deal chatter comes as a surprise because AT&T’s willingness to execute this transaction has to be questioned at a time when its entire strategy of combining content with its core-telco distribution clout still feels like an experiment. The company is also under the weight of tremendous debt.

However, AT&T’s stock price has been lagging, and Stankey needs to boost it by any means necessary.

It’s entirely possible AT&T’s move will actually end up accelerating an M&A response from the other players. If speculation was any indication, the M&A move that would have been the likeliest next domino to fall was an even bigger combination of WarnerMedia and Comcast’s NBCUniversal wing. That may still be in play; just because AT&T is making a different move here doesn’t mean there aren’t still more moves to make.

It never made sense to have at least 10 streaming services with premium content out there. Market rationality will slowly be restored one way or another.

Maybe that won’t be happening today because AT&T and Discovery don’t end up making the deal work, but someone else is going to make a similarly scaled move next.