U.S. markets closed
  • S&P Futures

    4,440.75
    +2.75 (+0.06%)
     
  • Dow Futures

    34,655.00
    +11.00 (+0.03%)
     
  • Nasdaq Futures

    15,301.00
    -2.50 (-0.02%)
     
  • Russell 2000 Futures

    2,255.80
    +0.60 (+0.03%)
     
  • Crude Oil

    73.10
    -0.20 (-0.27%)
     
  • Gold

    1,751.00
    +1.20 (+0.07%)
     
  • Silver

    22.58
    -0.06 (-0.25%)
     
  • EUR/USD

    1.1744
    -0.0003 (-0.02%)
     
  • 10-Yr Bond

    1.4100
    +0.0740 (+5.54%)
     
  • Vix

    18.63
    -2.24 (-10.73%)
     
  • GBP/USD

    1.3723
    +0.0002 (+0.01%)
     
  • USD/JPY

    110.3900
    +0.0890 (+0.08%)
     
  • BTC-USD

    44,521.54
    +832.92 (+1.91%)
     
  • CMC Crypto 200

    1,113.83
    +4.91 (+0.44%)
     
  • FTSE 100

    7,078.35
    -5.02 (-0.07%)
     
  • Nikkei 225

    30,200.89
    +561.49 (+1.89%)
     
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.

Analyst on AT&T deal merging WarnerMedia and Discovery: 'The merger has never really worked'

In this article:
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.

AT&T has announced a deal to merge WarnerMedia with Discovery. Tigress Financial Partners Analyst Ivan Feinseth joins Yahoo Finance Live to discuss.

Video Transcript

- It looks like we've reestablished that connection with Ivan Feinseth, Tigress Financial Partners Analyst. Ivan. I think you can hear us now. I want to just get your thoughts on this deal that came down today. Number one, about the structure, but what more it means for AT&T, really, just unwinding this deal just three years after they announced a big bet on content.

IVAN FEINSETH: Well, it does a couple of things. It helps them further maximize the value of the Warner investment with the partnership with Discovery. HBO Max is a good streaming service, and then Discovery had their separate streaming service, but was kind of getting lost from competition, including Disney and Netflix and Peacock. So there's a lot it consolidates, though. Those, plus it gives AT&T, brings down the debt and gives them more money to continue to invest in what is their core growth business, which is the rollout of their 5G wireless network and broadband network, and to continue to grow wireless subscribers. And also gives them the benefit of owning this media content, which is going to be accessed, in the most part, over their high speed network.

- Yeah, Ivan, when you think about the first point you're making there, having more flexibility here to really double down and focus in on the buildout of their 5G network. Similar moves that we saw our parent company make in shedding Verizon Media. But when you talk about the debt kind of position that AT&T found itself in as a result of building up a lot of its media bets over the last couple of years, talk to me about what it does to maybe shore up their balance sheet here, to focus in on that battle on the 5G space.

IVAN FEINSETH: Well, it gives them $43 billion to re-deploy. The one interesting thing is, media content is extremely important. And access to it is important, but the whole concept of the synergy of the merger have never really worked. Going back to AOL Time Warner in '99. So they kind of go hand in hand. But there's a lot value in media content, because unless you have content, you'd be staring at a blank screen. So the content is important, and the capital to further invest in developing more content is important. And at the same time, high speed access to it is important.

But I think as separate entities, it seems to be much better. Because together, they really haven't worked. So maybe this moves to that next phase where they coexist and benefit each other, but they're not necessarily owned by one company.

- Ivan, we're seeing some of the streaming competitors-- Netflix, as well as Disney-- down today in this session. I wonder what you think this means from a competitive landscape. It feels like there's been a big shakeup in this space. Whether, in fact, these other competitors make a change based on that, still to be answered. But I wonder what you think this means in terms of who is best positioned, especially in an increasingly competitive landscape.

IVAN FEINSETH: Well, I still believe that Disney is going to be the dominant streaming service. One, content is king and Disney is the undisputed king of content. However, I think that the merger of HBO and Discovery kind of makes it more simple, but gives a whole lot more content to the merged offering, which would, I guess, be called HBO Max. And while a stronger competitor is being this may be some pressure on Disney and Netflix and they're selling off.

But most research has shown that consumers will, on average, subscribe to three media services, streaming services, with a total cost of up to $40 a month. And that would certainly give you the opportunity. $40 would more than get you Netflix, Disney and this HBO Max offering with Discovery, and give you a whole lot of content to watch. And has a lot of appeal.

I mean, there's a lot of niche content in Discovery that's really great. Disney is incredible with the Marvel Cinematic Universe and the Star Wars universe of content. And Netflix does have a lot of good content as well. So I think it kind of simplifies the landscape and gives consumers clear choices. And it's not unreasonable to subscribe to all three.

- Yeah, I wonder if that really was kind of where you think this deal came from. A position of Discovery maybe looking at the competitive landscape and saying, look, we might be the fourth there. If you buy into the idea that people want to only tap out at three streaming subscriptions, and they might say, look, this is where consolidation is headed. People aren't going to want to keep racking up costs to where it looks like their cable bill, and kind of undoes the whole idea of what streaming was supposed to do in the first place. I mean, is that kind of the driving thesis in terms of how you see Discovery kind of accepting this and needing something like it to pair up with Warner Media and AT&T?

IVAN FEINSETH: Yes, well, I think one, the genesis is most likely the fact that AT&T has got a lot of good things going on, but the stock has never really reflected the shareholder value creation ability. So investors want companies to do specific things. Investors want AT&T to be a telecommunication company, and probably not a media company. And you can see by the increase in AT&T stock today that the market likes it.

And then consumers want access to content on this on-demand, kind of a la carte basis, and this gives that opportunity to combine these great bodies of content of these two companies and give consumers a more targeted and focused product. So that's why I think that the deal is the genesis of AT&T wants to focus their business and their capital on being a communication service provider. And now this other company can focus on being a media content company.

- And finally, Ivan, we heard from Discovery's CEO David Zaslav today, who's now going to be overseeing this new entity, say that he thinks that this combined entity can get to 400 million subscribers, direct to consumer. You look at Disney Plus, just over 100 million. Netflix, just over 200 million. How realistic do you think that number is? That 400 million?

IVAN FEINSETH: Well, Disney's goal in four more years is 350 million subscribers. And they have another line. They have the Starz coming out too, so this is global. So really, if consumers average three services, it's not that unrealistic if you look at the size of the potential marketplace. But the key will be content, and the key will be value.

It seems that $14, $15 a month is kind of the upper end of the cost. I mean, Disney Plus offers a tremendous value at $8. It started at $7, now it's up to $8, and you get a whole lot with Disney Plus. Or you can do their bundle, which includes Hulu and ESPN Plus.

Then also, you have Apple. You have Amazon Prime, so we can't discount Amazon Prime. Prime Video, I think, has about 150 million subscribers. But you get Amazon Prime Video with your Amazon Prime membership, which makes that an incredible value. So I think there is opportunity for somewhere for at least the leading companies to average around close to 400 million subscribers. The goal of Discovery's may be a little high right now, but I think Disney could easily get to 400 million subscribers.

- Yeah, it sounds like you're saying the runway is still long, at least in the streaming space. Ivan, it's good to get your insight today.

IVAN FEINSETH: Very much.

- [LAUGHS] Ivan Feinseth, Tiger's Financial Partners Analyst, appreciate your time.