Your phone company no longer wants to own your media company.

Five years ago, one of the worlds biggest phone companies announced it was buying one of the worlds biggest media companies. Now it wants a do-over: AT&T wants to combine WarnerMedia, the company that owns HBO, CNN, and the Warner Bros. movie studio, with Discovery Inc., the cable TV programmer that owns the Food Network and HGTV.

The short version: The people that brought you Game of Thrones and the people that brought you 90 Day Fianc are getting together.

This wont affect you, the person who likes to watch those shows, very much in the near future. But it underscores the upheaval in the media industry, as companies that used to dominate the landscape are scrambling to catch up with the new media giants which are tech companies.

Well do the longer version, including the rationale for this, in a minute.

But first, lets just take a second to marvel at the things you can do if you run a really big, really valuable phone company: You can tell the world that the future of your business involves combining your business selling subscriptions to broadband and wireless phone service with someone elses media business, and spend tens of billions of dollars doing that. And then you can announce, with a shrug, that youve changed your mind.

Thats what AT&T is doing now. In 2016, the phone company said it was going to pay more than $100 billion (including debt) to buy what was then called TimeWarner, and spent years fighting the Trump administration in court to get the deal done.

The deal raised eyebrows from the get-go, because TimeWarner had already been through a disastrous merger with an unrelated company that would be AOL during the first dot-com boom, and supposed synergies between those two never materialized.

But if you asked AT&T executives to explain why merging a media company with a non-media company would be different this time around, you would get bristly non-answers. Now were getting the real answer: Adding TimeWarner to AT&T didnt help AT&T sell more wireless or broadband plans. And it didnt help TimeWarner compete against Netflix and the rest of the internet.

Which is why AT&T is essentially unmerging WarnerMedia, and merging it with an actual media company, where there might actually be some synergies.

If this undoing sounds familiar, theres a good reason. Weve seen it happen twice this year alone.

In February, AT&T announced that it was unmerging with DirecTV, the satellite TV business it bought in 2015 for $67 billion, and is now worth something less than $16 billion.

And last month, Verizon announced that it was unmerging with AOL and Yahoo, two former internet powerhouses, in a deal that valued those companies at $5 billion about half of what Verizon had paid for them a few years earlier.

All of which is to say: Next time someone gives you grief at work for screwing something up, you can tell them that at least you didnt waste tens of billions of dollars on a failed media M&A strategy. (You should also consider working as an M&A lawyer or banker, where you get paid to do these deals whether they make any sense or not.)

So. Merging WarnerMedia with AT&T didnt work. Will merging with Discovery work? Mmmmmmaybe.

  • At the very least, it helps WarnerMedia, which is trying to compete with Netflix and Disney for a share of the streaming video subscription market, add weight and heft. Both WarnerMedia and Discovery have their own streaming video subscription services HBO Max and Discovery+ and putting both of them under the same roof can be more efficient. And there isnt a ton of overlap in the services: HBO Max is HBO shows plus WarnerMedia movies plus an assortment of other stuff. Discovery Plus is a collection of reality TV shows. The new company can market the two services separately, but it will undoubtedly roll out a merged version one day.
  • Both companies also own large cable TV operations WarnerMedias Turner group includes CNN, TNT, and Cartoon Network; Discovery has everything from the History Channel to Animal Planet. Those businesses are in permanent decline as WarnerMedia CEO Jason Kilar has said publicly but in the meantime, they still reach tens of millions of people and throw off a lot of cash. And combining the backroom operations of those networks can save more money along the way.
  • Wall Street is very excited about companies like Netflix, and now Disney, that can argue that they are streaming video companies. But it never bought AT&Ts argument that it was a streaming video company it valued it as a slow growth/no growth phone company that happened to own some media stuff. But now, in theory, investors who want to invest in WarnerMedia can do that, so maybe the new company will end up being worth something like the money AT&T sunk into it to begin with.

Lets pause here and note that this merger isnt a forgone conclusion, because AT&T and Discovery are proposing it in 2021 a time when regulators around the world are newly interested in slowing or stopping big companies from getting bigger, just for the sake of getting bigger.

AT&T had to spend a couple years fighting to get its WarnerMedia deal done, but that fight seems like it had a lot to do with the fact that Donald Trump didnt like CNN. (Trump and his regulators had no problem with Rupert Murdoch selling most of his Fox empire to Disney.) Now AT&T and Discovery will have to explain why combining two of the biggest video programmers in the world wont eventually result in less choice and/or higher prices for consumers, to a much more skeptical audience.

Free preview: AT&T and Discovery will say they need to do it to compete with Netflix, Amazon, Facebook, Apple, TikTok, and anything else on the internet. And the truth is, theyre right. A deal like this would have been jaw-dropping a few years ago. Now, its going to seem inevitable, and also not that big a deal.

Especially to someone like you, who is likely spending your screen time on a combination of paid services like Netflix, and free ones like TikTok, YouTube, and Instagram. Its possible, one day, that if you pay for HBO Max, or Discovery+, youll see some effect from this.

Maybe youll get a discount for buying both services or maybe the merged company will raise prices on both services, because they can. Perhaps youll see some crossover content, like a Food Network show dedicated to red sauce recipes from The Sopranos. But unless you work at WarnerMedia, Discovery, or their competitors, this is a megamerger you may not ever notice. Which tells you everything you need to know.

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