Discovery, in the wake of its jaw-dropping deal with AT&T on Monday, will pressure all the key players in the media space, argues long-time media sector analyst Craig Moffett.
"It's going to put pressure on everyone else," Moffett, who is one part of research firm MoffettNathanson along with partner Michael Nathanson, said on Yahoo Finance Live. "Netflix knew they were going to have to compete against some big players. And clearly that means Discovery will be one of those big players. Amazon, I think, just by virtue of who they are was going to be one of those big players."
AT&T said Monday it will spin off its media division WarnerMedia and merge it with Discovery almost three years after it spent an exorbitant $85 billion to buy the then Time Warner. The move joins household name media brands such as WarnerMedia's HBO and CNN with Discovery's HGTV, Animal Planet, Food Network, and TLC under one house, and would make Discovery a larger and even hungrier media beast.
The combined new company would form one of the largest global streaming platforms in direct competition with Netflix and Amazon. Proceeds from the deal for AT&T will go towards paying down a considerable debt-load of more than $160 billion, which will help as the soon to be pure-play telecom giant builds out its 5G network. AT&T is set to receive $43 billion in a combination of cash, debt securities and WarnerMedia's retention of certain debt, according to the press release announcing the deal.
Discovery President and CEO David Zaslav is set to lead the newly combined company following the close of the transaction, which is expected to take place in mid-2022. The combined company is targeting an annual $52 billion in sales and $14 billion in adjusted EBITDA (earnings before, interest taxes depreciation) by 2023.
The news sent shares of Netflix down nearly 2% in afternoon trading. Comcast shares fell about 5%.
Future of Comcast
Moffett believes the AT&T and Discovery tie-up will place the most pressure on Comcast, which owns NBCUniversal and has recently pushed into streaming via the launch of its Peacock service.
"The question now is the one who this puts the most pressure on is probably Comcast. Where now the question is what do you do with Peacock? They are a streaming play at NBCUniversal — but is that big enough? Almost certainly not. So what do you do about that? Do you try to get involved in the bidding here and outbid Discovery for the WarnerMedia assets? You couldn't keep most of them. A lot of them you probably wouldn't want and the cable networks inside of Turner you wouldn't be allowed to own because of CNN and you already own MSNBC," explained Moffett, referring to Comcast's possible strategy. "But do you try to get involved to say we really need to own HBO Max and potentially the film and TV studios at Warner Brothers. And you could see them getting involved because otherwise, they are sort of left on the outside looking in in the race for scale."
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