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Monday, March 14, 2022

HBO Max And Discovery+ To Merge Under The New WarnerMedia And Discovery Inc's New Company Warner Bros. Discovery

Discovery CFO Gunnar Wiedenfels says the mega-merger of Discovery and WarnerMedia — with an eventual combination of the Discovery+ and HBO Max streaming services — is on track for a mid-2022 closing.

“We’re in the ninth inning right now, in closing that transaction,” Wiedenfels told the Deutsche Bank Annual Media, Internet & Telecom Conference during a session that was webcast. He argued that combining the subscriber acquisition power of HBO Max with the customer retention power of Discovery+ content will “make for a blowout DTC (direct-to-consumer) product and that should certainly drive very healthy revenue growth for years to come.”

Wiedenfels also discussed the direct-to-consumer strategy following the merger of AT&T’s Warner Bros. with Discovery that will see an early bundling of Discovery+ and HBO Max, followed by eventually combining both streaming services into one consumer offering and platform. “We will start working on an interim solution in the meantime. So right out of the gate, we’re working on getting the bundling approach ready, maybe a single sign-on,” he said.

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The goal is to get early benefits from the merger. “But the main thrust is going to be harmonizing the technology platforms, building one very strong combined direct-to-consumer product and platform, and that’s going to take a while,” Wiedenfels added.

The Discovery financial chief said most major milestones toward finalizing the merger of Discovery and WarnerMedia had been reached. On Friday, Discovery shareholders formally approved the mega-combination of the factual and lifestyle media powerhouse Discovery with AT&T’s entertainment arm. The final green light for the mega-deal came at a special shareholder meeting held online; shareholders of AT&T, led by CEO John Stankey, do not need to vote on the combination.

Last month, the merger received approval from the U.S. Department of Justice, the key regulatory hurdle for the merger. The European Commission, the executive body of the European Union, had approved the deal in December.

In the big deal, AT&T will spin off WarnerMedia and merge it with Discovery, with AT&T shareholders set to receive an estimated 0.24 share in the new company for each AT&T share held. AT&T stockholders will end up owning 71 percent of the new Warner Bros. Discovery, with Discovery shareholders holding the rest.

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During his investor conference appearance, Wiedenfels returned to a familiar theme for his company, with the newly merged Discovery and WarnerMedia entity aiming to become a free cash flow machine. “We’re ready to generate a significant amount of synergies. We’re very bullish on our ability to drive free cash flow and delever the company very quickly, and position us for sustained free cash flow growth for many years to come,” he argued.

Discovery CEO David Zaslav will run the merged giant, with Wiedenfels serving as the new company’s CFO. Wiedenfels said early cost savings will come from reducing corporate overheads from the combined merger assets. And he reiterated that Discovery is eyeing $3 billion in annual cost synergies so far from the merger.

Synergies from combining HBO Max and Discovery+ will take longer to secure as the product and technology stacks of both streaming services had to be combined. “The teams are standing ready and everyone is super-excited to get going,” Wiedenfels said.

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Amid an increasing Wall Street focus on the profitability outlook for streaming services, both executives recently also vowed that the merged company would focus on growth in streaming, but not at any price. Wiedenfels promised a “conservative approach” to streaming content spending. And Zaslav said that “we plan on being careful and judicious,” summarizing the approach this way: “Our goal is to compete with the leading streaming services, not to win the spending war.”

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