Is The Warner Media-Discovery Merger Too Late?

Are digital media companies -- Google, Netflix, Amazon, and Apple -- now laughing at the potential Discovery-WarnerMedia deal?

Those companies can still do media distribution and outspend the legacy media companies on content. Netflix -- a relative newbie in the digital media world -- will easily spend $17 billion this year on content alone.

Digging deeper, the potential WarnerMedia-Discovery combination reflects the relationship between media distribution and media creation, something digital media giants have figured out.

The deal looks to put the nail in the coffin of the TV industry's version of “vertical integration.” As TV Watch noted in the past only Comcast Corp. has successfully made a go of it, starting back more than decade ago -- a cable TV/communications company owing a TV network group/movie studio.

Seven years after that deal was completed, in 2018, AT&T, a major communications/mobile company bought Time Warner for $85 billion. This lasted just three years. It’s hard to say anything other than it ws a failure for AT&T. (And we haven’t even mentioned DirecTV.)



Who gains now? Discovery, for sure. It finally gets to move up a more than few notches in the media content world, expanding beyond its limited unscripted/reality TV programming world.

For sometime, Discovery has been behind when it comes to monetization and distribution of its linear, live TV networks -- versus the viewership it receives -- in part, due to its cable TV-centric unscripted programming model.

It doesn’t get those high affiliate fee/distribution revenues of ViacomCBS, NBCUniversal or Disney, which have a broadcast or cable TV network with sports TV programming. Pay TV content distributors -- older cable/satellite/telco companies, new virtual pay TV providers and streaming app/distributors (Roku, Amazon Fire TV) -- sit up, take notice and pay more.

Discovery also gets lifted in terms of advertising revenue -- adding more live, linear TV networks: TBS and TNT. Those channels not only have sports programming -- the NBA, for example -- but also scripted TV entertainment. One downside: Discovery still doesn’t have a bigger broadcast TV network, though in a streaming world that seems to matter less.

For AT&T, the bottom line is HBO Max wasn’t growing nearly as fast as Disney+. HBO Max says it has over 44 million U.S. subscribers one year after its launch. But 30 million or so have come from existing HBO cable TV subscribers.

While WarnerMedia converted many of those linear TV customers to streaming, the bottom line, real additive growth, has been slow. And compared to Disney+ rising subscribers it continues to lose ground.

Moving forward, Discovery-WarnerMedia not only have to reckon with Disney+ and Netflix when it comes to subscription revenues, but a larger digital world where advertising continues to be dominated by Google and Facebook.

Before you say this is too little, too late, ask yourself: What are the alternatives?

1 comment about "Is The Warner Media-Discovery Merger Too Late?".
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  1. Ed Papazian from Media Dynamics Inc, May 18, 2021 at 10:05 a.m.

    Wayne, a couple of points. First, the "legacy TV" folks aren't really competing with Netflix. What they are doing is moving into streaming to set up yet another revenue stream---or several streams---AVOD ad revenues and SVOD/AVOD subscription incomes. This is essential as their "linear TV" base is shrinking due to people trying to save money via cancelling their cable systems and satellite distribution service bundles. Who are these people ---many of whom are now older and, hence, failry heavy TV viewers?  Some will opt for Netflix, but most will also subscribe to several of the four "linear TV" offerings by Disney+ ( ABC ), Peacock ( NBC ), Paramount + ( Viacom/CBS) and now Discovery/Warner ( Turner ). Instead of being forced to take all four---as in most "pay TV" bundles---the cord cutters can buy, say two of them plus something else--Netflix, HBO max, etc.

    Second, regarding how much is being spent on content, while the Netflix figure seems huge, much of it is for foreign language content to spur overseas subs---now Netflix's main growth area. However the TV programming ventures are not being outspent by Netflix when you count the costs of their "linear TV"fare---which garner $65 billion in ad revenues. These  all go into the TV programmers' large SVOD/AVOD libraries which will attract  something like 75-80% of the usage by subscribers---local and national news, sports, syndicated fare, network programming of all kinds, etc. And most of this cost is paid for by the time it gets to SVOD/AVOD. Netflix has nothing like that going for it. Indeed, it is losing many of the off-network shows that made up most of its subscribers' diet---so it has to spend heavily. There is no other option.

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