Roku, FuboTV Downplay WarnerMedia/Discovery Impact

AT&T and Discovery combining WarnerMedia’s entertainment, sports and news assets with Discovery's nonfiction, international entertainment and sports businesses is further validation the world is moving to streaming, said Roku Chief Financial Officer Steve Louden at a Monday investor conference. “Anything that provides further evidence that the other stakeholders in the ecosystem are doubling down on the streaming ecosystem, that’s good for us as the leading streaming platform.” Louden said Roku will continue to engage with the media companies and will be “one of the best distribution partners for the combined entity.”

On how distribution fees could be affected by the deal, due to close mid-next year, Louden deferred: “Our model is to align the value creation with the content publisher. When they win, and they create value on our platform, we have an economic interest in making them successful.” Existing deals will be up for renewal in the future, “and hopefully we can work together with the new management team,” he said.

The transaction won’t have a material impact on fuboTV, CEO David Gandler told the same virtual event. FuboTV doesn’t carry WarnerMedia’s Turner sports programming now, but they have been in discussions. WarnerMedia sports divisions include the TV channels for MLB, NBA, NCAA and NHL, plus Eurosport and assets in South America. A WarnerMedia property includes Eleague Super Punch powered by Twitch, an interactive experience about gaming topics. Fubo plans to launch sports betting on its sports-first platform in Q4.

What the deal “really shows is that bundles matter,” Gandler said. “You just never have enough content.” Aggregation is the future here, he said. “People want more content. If the tendency was toward skinnier content or just lifestyle, a deal like this wouldn’t need to happen,” he said. “People want sports, they want lifestyle, they want reality TV, and they want their movies and other forms of content.” WarnerMedia/Discovery “bodes well for us over the long term.”

“We’re pretty flush with sports rights,” said Discovery CEO David Zaslav, responding on a Monday call to an analyst's question on how the company will use its scale for sports rights and streaming. Zaslaw cited Olympics games, Eurosport, tennis, football and cycling, and said the company is moving the offerings around outside the U.S. “to drive our subscription platform.” It owns the PGA Tour outside the U.S. “We have plenty of sports,” he said: “Our focus will be how do we use what we have.”

Zaslav pivoted to the “extraordinary IP” developed by AT&T CEO John Stankey. “Taking HBO, taking the motion pictures … taking all the brands of content that we have; that would be the core of what we think is going to be two, three, eventually 400 million subscribers around the world.” He said: “We’re a content company; it’s all about putting the best creatives on the screen.”

Discovery went to Time Warner with the idea of creating “a global HBO, but all the series were sold in virtually every market,” said Zaslav. “That’s not a bad strategy, but it’s an arms-dealer strategy that creates value. But it doesn’t create asset value.” The deal wouldn’t have worked with the old Time Warner, he said, because “we’d look and say, ‘There’s nothing in the suitcase.’”

Under Stankey, WarnerMedia invested in signature series such as The Sopranos, Sex in the City and Game of Thrones. Warner has been producing more content and getting other content back with the strategy of taking it all to market and being able to be “a real force, a global force,” said Zaslav. In addition, he said, “they built a platform." Now, he said, “The suitcase is full, with the best content that was pulled back and not monetized so that the long-term value of a direct-to-consumer product could really happen.”

Under the all-stock reverse Morris trust transaction, AT&T would receive $43 billion. AT&T’s shareholders would receive stock representing 71% of the new company; Discovery shareholders 29%. How regulators will greet the proposed transaction is unclear (see 2105170034). Discovery shares closed at $33.85 Monday, down 5%. AT&T shares closed 2.7% lower to $31.37.

The combination of WarnerMedia and Discovery joins 29 U.S. basic cable networks accounting for over 30% of total industry advertising revenue, and roughly a quarter of total cable network industry revenue, Scott Robson, S&P Global Market Intelligence analyst, said Monday. The combined entity would surpass ViacomCBS' 27 U.S. basic cable networks. Discovery's U.S. cable networks don't have news and sports content, "which WarnerMedia brings to the table with CNN and Turner Sports." Kagan estimated 2020 revenues for the companies totaled $15.87 billion, with $6.55 billion ad revenue.

On the implications of the deal, Lightshed Partners analyst Richard Greenfield said "vertical integration fails again." In today’s media world, "focused scale is the only way to be both large enough and nimble enough to embrace technological change and carve a meaningful space in a tech platform dominated landscape." Zaslav "is the clear winner," Greenfield said, saying the transaction is "transformational for Discovery ... taking an unscripted/reality TV cable network group and adding in one of the largest movie and TV studios, more diversified cable networks and most importantly HBO/HBO Max with its aggressive push into DTC streaming." Greenfield questioned whether Comcast, the only remaining vertically integrated content/distribution company, will follow AT&T’s lead, spin off NBCU and combine with another media company. Comcast didn't comment Monday.