The great unbundling

Internet providers bet big on content. Now they're selling it off and taking a loss.

✍️ The big story

On Monday, AT&T announced that it was spinning out its media assets and combining the WarnerMedia group with Discovery’s media holdings. The new company will be run by Discover CEO David Zaslav and will bring together a variety of cable, film, and online media assets that include HBO, Warner Bros., CNN, TNT, TBS, Discovery, HGTV, The Food Network, and Animal Planet, among others.

After the merger is completed—the parties say they expect the deal to close in the middle of next year—AT&T will own 71 percent of the new company, while Discovery shareholders will get 29 percent. But what’s most important is the absolute scale of the new venture, which will rival some of the largest media companies out there. According to the NYTimes:

The new company expects to generate $52 billion in sales and $14 billion in pretax profit by 2023. Streaming will be a big driver of that growth and is estimated to bring in $15 billion in revenue.

On the one hand, the merger will create a new media behemoth; on the other, it is yet another failed effort by an Internet service provider (ISP) to smartly integrate content and media assets into its core business.

Just a few years ago, it was all the rage for the ISPs to buy up media companies in an effort to complement their data and TV offerings. The idea was that they would not only own the pipes but they would own the content that people were consuming and thus gain some benefit from their distribution capabilities.

The trend began about a decade ago with Comcast’s acquisition of NBCUniversal. A few years later, AT&T followed with its acquisition of Time Warner. And Verizon did its part by buying up AOL and Yahoo.

Now those deals are beginning to unravel, as both AT&T and Verizon have shed their media assets at a loss. And while Comcast seems content to keep most of NBCUniversal, there have been rumors that it’s looking to unload some of its media assets—most notably its regional sports networks.

The trend of ISP-content deals being unbundled calls into question the entire rationale of putting the two together in the first place, as Recode’s Peter Kafka writes:

Adding TimeWarner to AT&T didn’t help AT&T sell more wireless or broadband plans. And it didn’t help TimeWarner compete against Netflix and the rest of the internet.

This is why AT&T is essentially unmerging with WarnerMedia and merging it with an actual media company, where there might actually be some synergies.

It’s somewhat notable that this is actually the second time that Time Warner has been acquired by an Internet service provider, only to be later spun out—the first time being the disastrous AOL-Time Warner merger.

The question is if the people who own the pipes will learn from these lessons…or if they’ll try to play the media game again in a couple of decades.

📖 What I’m reading

How the Pentagon started taking U.F.O.s seriously [The New Yorker]
Are we really alone in the universe? A long read on the government’s tracking of unidentified flying objects.

The Jean War between millennials and Gen Z cannot be won [WaPo]
I will never tire of stories on changing fashion trends and the people who get really worked up over them.

In defense of snow days [Wired]
Just because we can do virtual school on days with inclement weather doesn’t mean we should.

The HBO Max boss’s script for a new Hollywood [WSJ]
On Friday, the Wall Street Journal dropped a big profile on Jason Kilar, CEO of WarnerMedia. Today, he’s negotiating his exit.

The rise of the appuccino: How TikTok is changing Starbucks [Buzzfeed News]
I honestly feel bad for the baristas forced to contend with bad patron behavior driven by the collection of Internet status points.

🧘‍♂️Your moment of zen