AT&T, Discovery in Talks to Mix Media Property

A deal between WarnerMedia and Discovery, whose portfolio contains its namesake community and HGTV, would additional consolidate a media enterprise buffeted by cord-cutting and competitors from streaming video.

The talks sign a serious pullback by AT&T, which positioned a large guess on media with its 2018 acquisition of Time Warner Inc. for round $81 billion. That deal made it the world’s most indebted nonfinancial firm.

Bloomberg earlier reported that AT&T was in talks to mix media belongings with Discovery.

Each AT&T and Discovery face daunting challenges within the conventional TV enterprise, as extra shoppers go with out cable and satellite tv for pc TV connections. Since 2010, about 35 million households have dropped their subscriptions to pay-TV channel packages or have skipped signing up within the first place, in keeping with market analysis agency MoffettNathanson LLC.

AT&T has staked a lot of its future in media on HBO Max, an expanded on-line model of the premium cable channel that’s designed to compete with huge streaming rivals like Netflix Inc. and Walt Disney Co. ’s Disney+. Discovery, which focuses on nonfiction programming, has its personal streaming service referred to as Discovery+.

AT&T has had alternatives lately to divest CNN, which was frequently attacked by former President Trump. However the telecom firm held on to it, viewing the community as a worthwhile monetary contributor. CNN’s scores boomed throughout election season, thrusting it into the highest spot in whole prime-time viewership, however the community has misplaced floor amid a wider decline in information scores. Fox Information regained the No. 1 spot in that class.

Fox Information father or mother Fox Corp. and Wall Avenue Journal father or mother Information Corp share frequent possession.

TNT and TBS carry common leisure programming, however a lot of their worth is of their rights to air main sporting occasions, together with NBA basketball and school basketball’s “March Insanity” event. Some staff in these cable channels—as soon as generally known as the Turner networks—have complained AT&T has starved them of assets and a spotlight, because it favors HBO Max. AT&T executives have disputed that cost. WarnerMedia Chief Govt Jason Kilar stated at a latest investor convention {that a} latest seven-year deal to air Nationwide Hockey League video games was “an indication to the market that we’re investing within the Turner networks” for the lengthy haul.

AT&T nonetheless earns most of its earnings from mobile-phone and broadband service. Its reported web debt surged to $169 billion on the finish of March following an costly Federal Communications Fee public sale for wi-fi spectrum licenses. The Dallas-based firm might want to spend billions of {dollars} over the approaching years to construct and keep an ultrafast fifth-generation wi-fi community that may sustain with rivals T-Cellular US Inc. and Verizon Communications Inc.

AT&T had talks lately with Discovery and HGTV proprietor Scripps Networks earlier than Discovery acquired it in 2018, in keeping with individuals accustomed to the matter. Some traders have since complained about AT&T’s stewardship of its media belongings and the debt it amassed to shut the Time Warner deal. Shares closed Friday at $32.24, down about 25% since mid-2016.

The enterprise is now a conglomerate pulled in a number of instructions by its debt load, its obligations as a telecom community operator and the big-budget outlays of its movie and TV studios. The corporate additionally pays a quarterly dividend that prices about $15 billion a 12 months. Its board final 12 months froze the dividend quantity after greater than 30 years of annual will increase however stopped in need of slicing a payout that many traders rely upon for regular earnings.

The channels on the coronary heart of WarnerMedia’s TV enterprise are the newest in a collection of belongings assembled by former AT&T Chief Govt Randall Stephenson that are actually on the block. The wi-fi large earlier this 12 months reached a cope with private-equity agency TPG to shed a 30% stake in its DirecTV enterprise for $1.eight billion. Many of the pay-TV unit consists of satellite-TV operations that the corporate purchased in 2015 for $49 billion.

John Stankey, who turned CEO of the conglomerate final 12 months, has stated he would deal with no asset as sacred and may shed any enterprise that doesn’t contribute to its father or mother’s total worth. On the similar time, he has stated the corporate stays dedicated to HBO Max because the cornerstone of an leisure enterprise that retains wi-fi and broadband prospects engaged whereas incomes a wholesome revenue itself.

Discovery, identified for TV exhibits corresponding to “90 Day Fiancé” and “Diners, Drive-Ins and Dives,” has not too long ago stepped up its funding within the streaming-video sector. The corporate positioned most of its exhibits right into a single streaming service referred to as Discovery+ and operates area of interest providers corresponding to Eurosport Participant and Meals Community Kitchen. Collectively, Discovery’s streaming providers have 15 million subscribers globally.

—Benjamin Mullin contributed to this text.

Write to Cara Lombardo at cara.lombardo@wsj.com, Dana Cimilluca at dana.cimilluca@wsj.com and Drew FitzGerald at andrew.fitzgerald@wsj.com