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What the WarnerMedia-Discovery mergers means for the streaming wars

Mark Douglas, CEO of television performance marketing platform Steelhouse, joined Yahoo Finance to discuss how Discovery could look to profit off the new media mega deal.

Video transcript

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- We've got to turn our attention to the situation that we all woke up to, which was the official announcement of the AT&T, Warner Media, Discovery merger, and then this new public company that's coming. A multibillion deal here. Mark Douglas is the CEO of SteelHouse. Mark, you and I have talked a lot about where is the revenue going to be for media companies going forward, so I am thrilled you're with us right now, because I'm going to jump to that question with you. How is this new whatever it's going to be going to generate revenue?

MARK DOUGLAS: Well, you know, what's interesting is that I think this combination has a chance at breaking into that top three or four streaming providers. The formula has been you get basically some-- a lot of original content, and you combine that with a lot of kind of, like, documentary content, and other, what you can think of as filler, content. And this deal has the two-- has the top documentary source combined to one of the top original content sources. And I think it can really potentially break through here.

- How big are we talking? Is this something-- we were talking about this last hour-- is this something you think could potentially compete with Disney Plus and Netflix? Is it going to be on that scale?

MARK DOUGLAS: Yeah, so-- so you look right now, it's basically like you said Netflix and Disney Plus-- Disney also owns Hulu-- and this has that-- this has that potential. What's also really interesting about Discovery-- this deal when you compare it to Netflix, is that they can offer subscription pricing, but they're also really good at ad-supported streaming. So they can potentially bring their price points down a lot lower, make a lot of the revenue from ad-supported content, and essentially bring streaming to people who otherwise are resistant to paying those subscription fees.

And so-- or they can do a combo where you pay a subscription fee-- fee plus ad supported. So I think they have a lot more flexibility than Netflix, but they have quite a content library here to potentially compete with Netflix. So I think this is one of the smarter deals in streaming. It's not just wishful thinking here, it's really assembling some top assets in a very flexible, you know, very-- to the question earlier-- a way that can generate money both from subscriptions as well as from ad-supported streaming. And so that's very unique.

- I always feel like I'm playing catch up when we have these discussions, Mark, because I'm still stuck in a world where the TVs shut off at 1:00 AM and they did the national anthem. But going forward, are they going to be double dipping? Not only if I-- if I pay for the HBO Max for instance, but also I get Netflix right now on my Apple TV. Will I also be paying them indirectly through a connected TV app on which their properties might be populating?

MARK DOUGLAS: Yeah, well, so that was when Disney came out. The thing about Disney is they were making money from cable, and all of a sudden they're now offering Disney as a subscription. And so for a while until people really shed cable, Disney is kind of double dipping. They can make revenue on both at the same time.

This deal also has that. Discovery is a primary content source in pretty much every cable subscription bundle, and even the skinny bundles like from Hulu. And then at the same time now, they have their own offering with HBO [AUDIO OUT] and that won't last forever, but it's nice to have in some sense your competitors contributing revenue to your company while you're building a presence to compete with them in the long term at the same time.

- Mark, when you take a look at the deal that we got this morning-- AT&T is selling Warner Media, our parent company Verizon, just a few weeks ago recently announced a deal that it's selling Verizon Media Group to Apollo-- why don't you think AT&T and Verizon were able to get this correctly? I mean, what is the missing piece here that someone like Discovery could potentially bridge that gap?

MARK DOUGLAS: Yeah, so what it shows is that vision matters and execution matters. And the CEO of Discovery has vision and-- and is executing. And if you want to win streaming, you can't just assemble content, you have to bring a vision to the table. Disney did it, Netflix basically invented it along with Hulu back in the days. And those things are important, and Discovery has got access to capital, huge content library, huge budget for content, and they're executing in an incredible way. And they're basically being led.

Yeah, but-- I don't think a lot of people knew the head of Discovery in the general world, but now they're going to know now because he's he's bringing a lot of vision to the-- to the table here.

- What about the AT&T shareholders? I was looking at the price of AT&T stock back in 2016, it's up since then, but not dramatically. And it's also got another $160 billion in debt. Should they be happy with this or are they going to wind up getting burned twice?

MARK DOUGLAS: Well, I mean that-- I-- I can't say I'm fully educated on, you know, specifically as an AT&T shareholder, but I would say that this deal appears like it's going to leverage those AT&T assets better than AT&T was doing it. So in that sense, you know, you're kind of disappointed as a shareholder there. That being said, all of this content has to be delivered over pipes, and AT&T owns a lot of those pipes. Yeah, as we continue to get, you know, high speed 5G and other things, so it's not like you're left with something that isn't in and of itself really valuable here.

- Mark Douglas, always great to speak with you, CEO of SteelHouse. We're--