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AT&T, a leading telecom company in the US, said that it is combining its WarnerMedia division with Discovery Inc, making a big move away from being a full player in media services, and specifically content creation.

According to AT&T Inc statement, a definitive agreement to combine WarnerMedia’s premium entertainment, sports and news assets with Discovery’s leading nonfiction and international entertainment and sports businesses to create a premier, standalone global entertainment company.

The deal is being structured as a “Reverse Morris Trust” transaction that will give AT&T $43 billion in a combination of cash, debt securities, and WarnerMedia’s retention of certain debt. The deal will see AT&T shareholders receive stock representing 71% of the new company, while Discovery shareholders will have 21%, the companies said in an announcement.

Entertainment leaders

Discovery President and CEO David Zaslav will lead the new, combined company. Not clear what role Jason Kilar, the CEO of WarnerMedia currently, will have, but his name is not mentioned in the press release… He is currently the CEO now of Warner Media, AT&T CEO John Stankey confirmed in a press conference.

In a statement, AT&T CEO John Stanke said the agreement unites two entertainment leaders with complementary content strengths and positions the new company to be one of the leading global direct-to-consumer streaming platforms.

“It will support the fantastic growth and international launch of HBO Max with Discovery’s global footprint and create efficiencies which can be re-invested in producing more great content to give consumers what they want. For AT&T shareholders, this is an opportunity to unlock value and be one of the best capitalised broadband companies, focused on investing in 5G and fiber to meet substantial, long-term demand for connectivity,” said John Stanke.

Streaming services

He also highlighted that AT&T shareholders will retain their stake in its leading communications company that comes with an attractive dividend. “Plus, they will get a stake in the new company, a global media leader that can build one of the top streaming platforms in the world,” said John Stanke

The companies expect the transaction will create substantial value for AT&T and Discovery shareholders by as it brings together the strongest leadership teams, content creators, and high-quality series and film libraries in the media business.

Also, the deal will accelerate both companies’ plans for leading direct-to-consumer (DTC) streaming services for global consumers. Uniting complementary and diverse content strengths with broad appeal — WarnerMedia’s robust studios and portfolio of iconic scripted entertainment, animation, news and sports with Discovery’s global leadership in unscripted and international entertainment and sports.

Investment resources

Shareholders will get benefit as it will pave the way for forming a new company that will have significant scale and investment resources with projected 2023 Revenue of approximately $52 billion, adjusted EBITDA of approximately $14 billion, and an industry-leading Free Cash Flow conversion rate of approximately 60%.

The company also claims that it will create at least $3 billion in expected cost synergies annually for the new company to increase its investment in content and digital innovation, and to scale its global DTC business.

The deal confirms rumors over the weekend, and it comes weeks after Verizon Communications announced that it would be selling off its own non-telecoms interests, Verizon Media, in a deal with Apollo Management in a $5 billion deal. (TechCrunch is a part of Verizon Media.) Zaslav said in a press conference with Stankey that the deal was hammered out in secret in “my Greenwich Village townhouse.”

Technology company

At a time when streaming the name of the game in media — this is where consumers are watching, and they are watching in more ways than ever before such as phones and tablets, and that means not just classic media companies, but also a wide range of technology companies are also investing big here — this is creating nothing short of a content colossus.

It will include some 200,000 hours of iconic programming with more than 100 of the “most cherished, popular and trusted brands in the world”. These include HBO, Warner Bros., Discovery, DC Comics, CNN, Cartoon Network, HGTV, Food Network, the Turner Networks, TNT, TBS, Eurosport, Magnolia, TLC and Animal Planet.

The companies confirmed that they plan to include news in the largely-entertainment focused group. They say it will have annual revenues of approximately $52 billion, with adjusted EBITDA of approximately $14 billion, and Free Cash Flow conversion rate of around 60% and “at least $3 billion in expected cost synergies.” (That will be a tough one to see play out… that is a lot of cuts.).

Warner empire

On the other side, it’s something of a retreat for AT&T, which spent years building out (and fighting regulators own) its Warner empire, which had been intended to be the telco’s big play to not just provide the network for people to interact with services — be it voice, broadband or mobile — but the content itself.

In media and communications, there was a time when all people could talk about was “triple play” (TV, broadband and voice) and then “quad-play” (adding in mobile) as the ideal suite of services to capture consumers and their entertainment and information appetites (and by association their media/advertising appetites). That’s proven to be a much more complicated dream to realise, however, so it’s no surprise to see the companies today touting what a great “pure-play” deal this is for everyone.

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