By Leonard A. Robinson
The recent merger of Discovery Inc. and the WarnerMedia division of AT&T is a relationship built for Hollywood: complex and fraught with drama.
Investors in both companies seem to have lost their enthusiasm for the merger announced on May 17. Within hours, the stock price of both companies dramatically declined and performed poorly throughout the week.
Discovery lost nearly 12% by the end of the week, the Wall Street Journal reported.
Investors for both companies were initially thrilled at the endless opportunities for the merger. For Discovery, it propelled a niche cable channel to new heights as one of the largest players in Hollywood and the entertainment industry. Investors for AT&T saw an opportunity for the company to refocus its core business rather than wasting money on a media operation that remained largely unpopular.
John Malone, billionaire media mogul, and others believe that the deal is still good news, especially for HBO Max, whose ability to reach more customers is expected to grow under the merger.
“I think we are not only going to be the third such platform, but I think we’ll be very competitive with the other two in terms of being able to satisfy the entertainment and curiosity and information needs of the world, basically, a worldwide platform,” Malone said to CNBC.
Discovery’s stock performance has struggled after Archegos Capital Management began selling enormous quantities of various blue-chip stocks, including Discovery and Viacom, after failing to meet its margin call. This will prove a challenge for Discovery, which must preserve the value of WarnerMedia during the period awaiting regulatory approval, which typically is a year or more.
Further complicating the matter, the New York Times reported on May 17 that WarnerMedia CEO Jason Kilar had procured a legal team to negotiate his departure.
Another concern that some have is the ability to merge the two companies. As a cable content provider, Discovery is known for more niche content with channels such as Animal Planet, TLC, Food Network, and HGTV. Meanwhile, AT&T owns Warner Bros. Studios, Time Warner properties, and WarnerMedia properties designed for broad appeal.
In a recent poll, investors were “least confident” in the new company’s ability to achieve a stated goal of $15 billion in direct-to-consumer revenue by 2023, according to the Wall Street Journal.
In typical Hollywood fashion, both companies are under pressure to make the deal work or risk a costly failure. According to Hollywood Reporter, AT&T would owe Discovery $1.7 billion if the deal falls through, with Discovery on the hook for $720 million if they back out earlier.