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Streaming platforms to consolidate? "The stuff that dreams are made of"

10 June 2021. Published by Alessandro Cerri, Senior Associate and Sophie Parkinson, Trainee Solicitor

Discovery and AT&T's WarnerMedia are merging to create a streaming behemoth named Warner Bros. Discovery, and Amazon is reportedly in talks to acquire Metro Goldwyn Mayer (MGM). Will this mark a trend in the consolidation of streaming platforms, and what are the implications?

The consumption of entertainment content via streaming platforms was accelerating significantly even before a year of global lockdowns.  It may not be so surprising then to read that some streaming platforms are consolidating in a bid to improve their customer offerings. The recent merger announcement between Discovery and AT&T's WarnerMedia, has been closely followed by an agreement being signed between Amazon and MGM.

Like they do on the 'Warner Bros.' Discovery Channel 

Discovery CEO David Zaslav will soon lead the newly named Warner Bros. Discovery platform (whose strapline is "the stuff that dreams are made of").  The agreement was announced on Monday 17 May 2021, and it is reported that the deal will see AT&T receive $43 billion (in cash and debt securities) in exchange for its shareholders receiving 71% of the new company (with Discovery's shareholders owning the remaining 29% of stock). Both AT&T and Discovery's boards have approved the merger. 

Should the deal fall through, AT&T and Discovery have reportedly agreed termination fees of $720 million and $1.8 billion respectively.

The $3 billion expected savings on annual cost synergies will be invested in content and digital innovation, with Zaslav saying that the target is for the new platform to put $20 billion per year towards new content. The combined company will be worth approximately $132 billion (including $56 billion in debt), with an estimated annual revenue of approximately $52 billion.  

Whilst the WarnerMedia side of the business is much bigger than Discovery (counting Warner Bros. HBO, DC Comics and CNN on its roster), Discovery is able to harness reach in over 200 countries and brings with it a growing sports and news business in Europe, together with its portfolio of reality TV shows.  The merger is subject to various regulatory checks and hurdles, with AT&T and Discovery explaining that they expect the merger to finally complete in mid-2022.

A view to a merger

MGM, which runs the James Bond franchise, had put itself up for sale towards the end of 2020, with many commentators citing the rocketing value of streaming content.  It was announced last week that Amazon and MGM have signed an agreement for Amazon to acquire MGM for a purchase price of $8.45 billion.

According to Mike Hopkins, Senior Vice-President of Prime Video and Amazon Studios:  "The real financial value behind this deal is the treasure trove of intellectual property in the deep catalogue that we plan to reimagine and develop together with MGM’s talented team".

Not all of the big five Hollywood studios are expressing a desire to be part of the streaming consolidation.  Kenichiro Yoshida, Chief Executive at Sony, has denied that the company would be selling its film and TV studio (which according to press reports is being valued at c. $30 billion).

It will be interesting to see where this ever-increasing vertical integration is headed, as well as any reactions from legislators and regulators as the mergers work their way through various competition / anti-trust hurdles before completion.  

AT&T announcement here and Discovery announcement here.

Amazon and MGM agreement here.