AT&T dropped a bombshell on Sunday when it announced it would combine the media assets of WarnerMedia with Discovery Inc. to create a new publicly traded company, unwinding the telco’s big bet on its acquisition of Time Warner in 2018.
The deal, however, does not include the sale of Xandr, the ad tech division formerly known as AppNexus that it had acquired three years ago and merged with WarnerMedia last year. The company did not immediately respond to a request for comment.
The deal is expected to close next year and would combine WarnerMedia’s premium entertainment, sports and news assets – including HBO Max – with Discovery's vast content library as well as the recently launched Discovery Plus. The result would be a standalone entertainment company that will fuel both companies’ direct-to-consumer streaming ambitions. The new company, which has yet to be given a name, is expected to generate about $52 billion in revenue in 2023.
Under the terms of the agreement, AT&T would receive $43 billion in a combination of cash, debt securities and WarnerMedia’s retention of certain debt. AT&T’s shareholders would receive stock representing 71% of the new company; Discovery shareholders would own 29% of the new company.
AT&T acquired Time Warner for $85 billion.
According to AT&T, the new “pure play” content company will be able to invest in more original content for its streaming services and also enhance programming options across its global linear pay TV and broadcast channels. In turn, AT&T said the deal would allow it to better capitalize on the longer-term demand for connectivity and position it as a leading 5G and fiber broadband company.
The arrangement leaves Xandr’s future in question. AT&T’s acquisition of AppNexus in June 2018 for $1.6 billion, and its rebranding as Xandr, generated a big splash as a core pillar of AT&T’s strategy to monetize (and justify) its acquisition of Time Warner. The holding was combined with AT&T’s legacy addressable TV business AdWorks and its core products were rebranded as Xandr Invest (DSP) and Xandr Monetize (SSP).
In the first quarter of 2021, spending on Xandr soared 75% in digital video, driven by CTV, which saw ad spend increase 235%. Video now accounts for 35% of overall spend on the platform.
AT&T began exploring the sale of Xandr last year, though a deal has not yet emerged.
The merger of WarnerMedia and Discovery also marks another step in AT&T’s unloading of its media businesses, following an agreement to sell a stake of DirecTV — which AT&T acquired in 2015 for $9 billion – to private equity firm TPG for $1.8 billion in February.