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AT&T merging WarnerMedia with Discovery

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On Monday, AT&T announced that its WarnerMedia unit — which includes brands such as HBO Max and CNN — would merge with Discovery in a $43 billion deal.

Video Transcript

MYLES UDLAND: Let's bring in Yahoo Finance Editor in Chief Andy Serwer now to talk more about this deal, another big shakeup in the media space. Andy, let's kind of begin this way. You worked at Time Warner, the former Time Warner, for a long time. You've seen a number of cycles of media combinations, breakups, coming back together. What does this latest deal say to you about kind of the state of play with the endless game of musical chairs in the big media space?

ANDY SERWER: That's right, Myles. And putting together content and distribution has become a sport, if you will, for bankers and CEOs in the media and distribution space, if you will. And I go all the way back to when Time Warner [GARBLED AUDIO] AOL. And remember, AOL was a distribution platform, essentially. And that was put together in 2000 as the biggest media company on the planet.

And the bankers at Morgan Stanley helped put that deal together and, in the ensuing decade or so, helped take it apart. So the bankers kind of make out here.

And it's curious to me why these companies continue to try to do this. I should mention, of course, our parent company Verizon bought AOL and Yahoo. And just the past week or so has decided to offload that as well to Apollo. So it's interesting that both of the largest telco companies in the United States got into the media realm and then just got out after exactly the same time.

And it reminds me of the old adage, you guys, that if you want milk, you don't necessarily need to buy a cow, right? In other words, you can do a lot of deals with media companies if you're a distribution company. Why you would buy them is unclear to me. Though there is one success story to point to in this space.

JULIE HYMAN: And that would, what, be Comcast?

ANDY SERWER: Exactly. And you know, it's curious, Julie, why that is. And I think you can point to a few things. First of all, patient capital. And that company is sort of controlled by the Roberts family, right? And I think that they've really given this a lot more time to work out. And they have a lot more say over how the companies are integrated or not and have really worked very hard at sort of grinding down the fiefdoms that are typical in media properties.

JULIE HYMAN: Well, and I guess that sort of raises the question, with the one success story, the one notable success story, I mean, can we sort of make the blanket statement that vertical media deals are, in general, a bad idea? I don't know if that's going to dissuade the telecom companies from making them in the future, though.

ANDY SERWER: I think you're right. But these bankers do a very good job of convincing CEOs and stroking their egos to do these deals. And let's face it. I mean, on the face of it, there is some compelling reasons to do this. It sort of makes sense.

So you got these pipes. And they need to be filled. And the best way to fill them as if you fill them yourself.

But I remember, Julie, going all the way back to the Time Warner deal-- and this was when Time merged with Warner, for instance. And that was 1990. I was around for that deal as well. And the people from the movie studio came back east and we're talking was-- it was a humble magazine company at that point.

And they said, well, when we release a movie in Hollywood, that means you people at "Time" magazine will write a nice review about the movie. And the people at the magazine were mortified. They said, well, that's not how it works. And then the movie studio goes-- and I remember this vividly. He goes, then why are we doing this deal? Right?

And that goes back to the cow in the milk thing. You can do relationships. But you don't have to own them. In fact, it might not be optimal to own them.

BRIAN SOZZI: Andy, the companies are putting out some very lofty financial projections. By 2023, they're projecting $52 billion in sales and $14 billion in EBITDA. How is Discovery going to drive value from this deal?

ANDY SERWER: Yeah. I mean, I'm glad you're sort of looking forward a little bit. And as Myles noted, Brian, that stock, Discovery, is up a lot. Discovery, what an interesting company. Of course, it's been through the wringer with the selloff from that hedge fund earlier in the year. And David Zaslav, who's going to be running this thing, has always sort of been a second-tier media mogul. He's going to kill me for saying that. But David, I think that's kind of the case.

Although, I would say that this deal kind of elevates you into the top realm so that when you go to the Allen and Company mobile fest next time around, you will be kind of a kingpin there at the very top level. Although, Discovery has been a very successful company.

So to answer your question, Brian, there's going to be a lot of cost savings. That company, Discovery, also though, is very good at driving value and driving brand awareness across all those cable channels that it owns. They've been very, very successful. They've been masters at marketing and also tapping into what people want, particularly young audiences. They're very popular with younger people, which is obviously incredibly important.

MYLES UDLAND: You know, Andy, I think us all being in the media space, we could probably go on this deal all day. But you brought up an interesting point that I do want to double-click on, which is the idea of the mogul here and the big players that are involved, right?

John Malone has a large stake in Discovery. And I think Advance Publications is kind of part of that holdco that's involved with the Discovery ownership stake. But Zaslav comes from-- I guess I would say a different era, an aging era within the media space. And I think a key player here that there are questions around-- I don't know if we're going to know the answer today.

But what happens to Jeff Zucker? Because CNN, I mean, he had been planned, I think, to leave at the end of this year. But CNN is really the crown jewel within the live Warner Media space, if we want to sort of call it that. And I think there's just a lot of questions about where all the different players go here, especially since current Warner Media CEO Jason Kilar not mentioned once in the press release, which I think you and I both know that means he is on his way out.

ANDY SERWER: Yeah. I mean, he'll probably be running-- Jason Kilar that is-- probably running it for a year or so and then be sort of shown the door, I would speculate.

Jeff Zucker, a really interesting point there as well. He has a relationship with Zaslav, so that's a possibility. But CNN's kind of the odd man out. I mean, it doesn't fit with sort of the Discovery channels that have become so famous and popular.

So there's already been speculation there that that would go to another owner, potentially, maybe not right away but at some point. So that's interesting.

And then other personalities, John Stankey, wow, how about him? And remember, he ran Warner Communications under Randall Stevenson at AT&T. Then when he's become the CEO, he's unwound not only the Warner communications deal but the satellite deal as well. So talk about taking over from your predecessor, your mentor, and then undoing the damage, if you will, that he did.

Now, AT&T's stock, even with those two deals, has really gone nowhere over the past 12 months. And you can say the same thing about Verizon unloading Yahoo-AOL. That stock has not really moved much on that news. And both of these unloadings, if you will, were pretty widely anticipated, I guess. So maybe it was already priced in.

JULIE HYMAN: There is another stock that's moving this morning, and that's Netflix, which is moving down. And I saw a few media journalists and analysts mention this morning that on the call, discussing the deal, it sounds like the combined spending plans of this new entity on programming is going to be around $20 billion. And a lot of folks pointing out that compares with, what, around 17, I believe, for Netflix. So are we talking about, finally, a real competitor, more of a competitor?

ANDY SERWER: Yeah. And also remember, Julie, that they have underpriced Netflix. And Zaslav was very adamant about that point a couple of months ago when he was sort of rolling out their premium offering. So I think you've got a well-funded competitor and an aggressive competitor.

And I just think the number and scale of competitors is starting to make people question Netflix's position. I would not underestimate Reed Hastings. He's seen these things before. The death of Reed Hastings has been called before, remember.

But it's not getting any easier with Disney and Peacock and all the rest. So it'll be interesting to see exactly how much programming this new media giant does start to fund. And that is a pretty big warchest though, you're right.

MYLES UDLAND: All right, Andy Serwer, you're going to be talking to John Stankey and David Zaslav later today here on "Yahoo Finance Live," 4:00 PM Eastern time, we expect that conversation to take place. Andy, thanks so much for stopping by this morning. And I know we'll talk later on as details emerge.