Many telecoms are splitting with the entertainment companies they acquired to focus on their core businesses which demand serious technology investments.
Telecoms and media companies were once trumpeted as the ideal corporate couple—premium content would create demand for the network provider and the network provider would plough cash into media production. Then theory met reality.
A recent unwinding of two such deals shows how such marriages can come to a costly divorce. In May, AT&T sold Warner Media—a prized acquisition it had defended in 2018 in front of an antitrust commission—to Discovery for $43 billion in cash and bonds plus a stake in the new company. It had paid $85 billion only a few years before. Two weeks earlier, in a smaller but similar move, Verizon sold its AOL and Yahoo properties to private equity firm Apollo Global Management in a deal said to be worth $5 billion. It had paid around $9 billion, combined, to acquire them.
For AT&T, one of the most indebted companies on Wall Street, the split from Warner Media (owner of CNN and HBO) represents a complete about-face from its previous plan to stream news and movies on millions of cellphones. The telecommunications giant went from “premium content always wins” in its 2016 announcement of the Time Warner deal to highlighting the need to refocus on its own core business.
“For AT&T shareholders this is an opportunity to unlock value and be one of the best capitalized broadband companies, focused on investing in 5G and fiber to meet substantial, long-term demand for connectivity,” said CEO John Stankey in a May 17 statement announcing the sale.
Telecoms face a need for heavy investment in 5G technology and fiber. At the federal 5G-Spectrum Auction in February, AT&T spent around half as much as its rival Verizon, which has been making a big push into 5G service. Market analysts had stressed that investments in HBO Max were prompting sacrifices in wireless service.
Comcast offers one counterexample. It is the owner of NBC Universal, with news and entertainment networks and local TV channels. Comcast bought it in 2011 and, as of today, is holding.