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Discovery and AT&T: How a Huge Media Deal Was Done

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Deals are rarely smooth, and an anomaly with Discovery’s share price dovetailed with the negotiations. Discovery’s stock began to inexplicably rocket in February and March to $75 from $45 because of a convoluted trading scandal involving Archegos, a little-known private investment firm that bet big on Discovery and other companies via derivatives using billions in borrowed money.

With banks forced to buy shares to hedge their spiraling exposure to Archegos, Discovery’s market value jumped nearly 60 percent, for no obvious reason to outsiders. But by May, the stock had returned to where it was during Mr. Zaslav’s initial approach, and the two sides ultimately forged a deal that gave 71 percent of the new company to AT&T shareholders and 29 percent to Discovery.

Now, the trick was closing it before word could leak out.

One awkward conversation awaiting Mr. Stankey was with Jason Kilar, the former chief of Hulu tapped by AT&T, with great fanfare, just a year earlier to lead WarnerMedia. To mark the occasion of his first anniversary on the job, Mr. Kilar had agreed — with AT&T’s blessing — to be profiled by The Wall Street Journal. He invited a reporter in late April to interview him on the Warner Bros. lot in Burbank, Calif., unaware that across the country, his colleagues were feverishly working to close the deal.

At some point during the week of May 3, Mr. Stankey dropped the bomb: He informed Mr. Kilar that the company would soon change hands, and it was unclear what Mr. Kilar’s role might be. The 2,600-word Journal profile of Mr. Kilar, which included a quote from Mr. Stankey, was published on May 14, three days before the deal was announced.

Usually a cheerful presence on Twitter, Mr. Kilar didn’t bother sharing the article with his 37,000 followers. By the weekend, Mr. Kilar had retained the entertainment power lawyer Allen Grubman to start negotiating his exit.

A little after 7 a.m. on Sunday, Mr. Zaslav boarded a corporate jet at a small airport on the East End of Long Island, not far from his home, to head to AT&T’s Dallas headquarters to put the finishing touches on the deal. But just over an hour into the flight, word got out through Bloomberg’s black-and-orange terminal screens: “AT&T is in talks to combine content assets with Discovery.”

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AT&T’s WarnerMedia Group to Merge With Discovery

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It’s as if Logan Roy, the fictional patriarch of the Waystar Royco media empire on HBO’s popular series “Succession,” masterminded the deal himself: AT&T has thrown in the towel on its media business and decided to spin it off into a new company that will merge with Discovery Inc.

The transaction will combine HBO, Warner Bros. studios, CNN, TNT, TBS and several other cable networks with a host of reality-based cable channels from Discovery such as Oprah Winfrey’s OWN, HGTV, the Food Network and Animal Planet.

But it raises numerous questions about what that will mean for popular shows and streaming platforms, whether entertainment bills will go up or down, or what will happen to the people working at WarnerMedia and Discovery.

WarnerMedia is known for producing some of the industry’s biggest theatrical and television hits.

HBO last year captured more Emmys than any other network, studio or platform, and its hit shows include “Succession,” “Curb Your Enthusiasm” and “Last Week Tonight With John Oliver.” It also has a huge library that includes “The Sopranos,” “Game of Thrones” and “Sex and the City.”

Netflix, the industry leader, has over 200 million subscribers, and everyone else is far behind.

Both WarnerMedia and Discovery have invested heavily in streaming. WarnerMedia has spent billions building HBO Max, which together with the HBO cable network has about 44 million customers. Discovery has 15 million global streaming subscribers, most of them for its Discovery+ app.

The companies plan to invest more in both services to get those numbers much higher. David Zaslav, the chief executive of Discovery, who will run the new business, said on Monday that he envisioned hundreds of millions of subscribers around the world, but that will be tough as Netflix and Disney invest in new shows of their own to keep a grip on the market.

Jason Kilar, who was hired to run AT&T’s media group only last year, is most likely on his way out. He was kept in the dark about the deal until a few days ago, and he has hired a legal team to negotiate his departure, according to two people briefed on the matter.

But it could mean the elevation of other executives within WarnerMedia. On Monday, Mr. Zaslav praised Toby Emmerich, the head of the film division, Casey Bloys, who runs HBO, and Jeff Zucker, the leader of CNN. Mr. Zucker and Mr. Zaslav are also longtime golfing buddies.

When asked about his plan for the management team, Mr. Zaslav said he would not favor Discovery executives.

“Philosophically, our view is we don’t know better,” he said. “There’s a reason WarnerMedia is where it is today.”

The companies expect the deal to be finalized in the middle of next year, and they anticipate annual cost savings of $3 billion. That usually means layoffs are coming.

WarnerMedia already went through several rounds of deep staff cuts after AT&T’s purchase of the company in 2018 as Mr. Stankey, who led the unit for a time, slimmed down the operations. Executives and managers were let go as he combined HBO, Warner Bros., CNN and the other cable networks under a single management team.

When Mr. Kilar came aboard last year, he cut further. Over 2,000 employees were laid off in the process.

To realize $3 billion in cost savings will inevitably mean more layoffs — at both WarnerMedia and Discovery. Mr. Zaslav said there was “a treasure trove of talent” at WarnerMedia, and emphasized the fact that Discovery doesn’t make scripted shows.

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AT&T-Discovery Deal Would Create a Media Juggernaut

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Less than three years after AT&T spent over $85 billion and millions more fending off a government challenge to buy Time Warner, one the biggest prizes in media, the phone company has decided on a completely different strategy.

AT&T is in advanced talks to merge its media business, including CNN, with Discovery Inc., two people briefed on the deal said on Sunday. The plan would incorporate all of AT&T’s Warner Media assets, which include HBO and Warner Bros., one of the people said. The parties could announce a deal as soon as Monday, this person said, saying that the talks were not yet complete and final details had not been worked out.

Should AT&T and Discovery agree on a deal, it would combine two of the largest media businesses in the country. AT&T’s WarnerMedia group also includes the sports-heavy cable networks TNT and TBS. Discovery has a strong lineup of reality-based cable channels, including Oprah Winfrey’s OWN, HGTV, the Food Network and Animal Planet.

WarnerMedia is run by Jason Kilar, 50, one of the early pioneers of streaming and the first chief executive of Hulu. David Zaslav, 60, has been the head of Discovery for 14 years and helped it grow into a reality behemoth. It’s unclear who would lead the new business.

reported on the possible deal.

The transaction would create a new company bigger than Netflix or NBCUniversal. WarnerMedia and Discovery together generated more than $41 billion in sales last year, with an operating profit of over $10 billion. That would have vaulted it ahead of Netflix and NBCUniversal and behind the Walt Disney Company.

In other words, to compete for audiences increasingly glued to Facebook, YouTube or TikTok, media companies need to get even bigger. It could set off another round of media deals.

Both AT&T and Discovery have invested heavily in streaming in an effort to compete with Netflix and Disney. AT&T has plowed billions into creating HBO Max, a streaming platform that now has about 20 million customers. Discovery has 15 million streaming subscribers around the world, most of them for its Discovery+ app.

The merger would also be a significant about-face for AT&T, a telecommunications giant better known for servicing fiber lines and cell towers than producing entertainment and courting Hollywood talent. Industry observers questioned AT&T’s daring purchase of Time Warner at a time when cord-cutting was only accelerating. The spinoff indicates a failed acquisition strategy.

“AT&T didn’t know what they were buying,” said Brian Wieser, a longtime Wall Street analyst. “The strategy underpinning” the acquisition “was probably flawed.”

Brooks Barnes, Lauren Hirsch and Andrew Ross Sorkin contributed reporting.

This is a developing story. Check back for updates.

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Creator of ‘All Rise’ on CBS Is Fired After Writers’ Complaints

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Warner Bros. Television has fired the showrunner and creator of the CBS show “All Rise,” Greg Spottiswood, after a second investigation into allegations regarding how he dealt with the show’s writers, including in conversations involving race.

“Warner Bros. Television has relieved ‘All Rise’ executive producer Greg Spottiswood of his duties, effective immediately,” the studio said Wednesday night in a statement. “We remain committed, at all times, to providing a safe and inclusive working environment on our productions and for all employees.”

Mr. Spottiswood had previously been investigated for his treatment of the writing staff during the first season of the CBS procedural, which debuted in September 2019 and stars a Black actress, Simone Missick, as the show’s protagonist, an idealistic Los Angeles judge. The studio kept Mr. Spottiswood, who is white, in charge of the show, and provided him a corporate coach to advise him. It also hired a new co-showrunner, Dee Harris-Lawrence, after his original co-showrunner, Sunil Nayar, left the production.

Five of the original seven members of the “All Rise” writing staff left the show because of his treatment of them and the way the show, under his direction, depicted race and gender, The New York Times reported in August. Among those who departed were the series’ three highest-ranking writers of color, including Shernold Edwards, a Black woman who departed in November 2019 after multiple disagreements with Mr. Spottiswood.

“We had to do so much behind the scenes to keep these scripts from being racist and offensive,” Ms. Edwards told The Times.

At the time, Mr. Spottiswood said he was aware of the problems with his leadership and pledged to do better.

“All Rise” has been celebrated by CBS after its prime-time lineup had been criticized for its lack of diversity. It has been applauded both for its inclusive cast and its equally diverse writers room. Yet the writing staff from the original season said problems were apparent from the start.

Mr. Nayar, for one, complained of being sidelined by Mr. Spottiswood, claiming he was interested only in having Mr. Nayar appear at public events with the title of executive producer but did not give him the duties to match that position.

“It became clear to me, when I left the show, that I was only there because I’m the brown guy,” Mr. Nayar said in an interview at the time. “Greg hired me to be his brown guy.”

The most recent investigation was again focused on statements Mr. Spottiswood was said to have made in the writers’ room. After the studio’s inquiry, Mr. Spottiswood was also dropped as a client by his talent representatives at the Agency for the Performing Arts. The agency had represented him since 2015.

A lawyer for Mr. Spottiswood did not respond to a request for comment.

Ms. Harris-Lawrence will take over Mr. Spottiswood’s responsibilities for the remainder of the season. The show is in production on its 15th episode of its 17-episode season. Production is scheduled to conclude next month.

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Ellen DeGeneres Loses 1 Million Viewers After Apologies for Toxic Workplace

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Public perception of Ms. DeGeneres started to change in July when BuzzFeed reported that several of the show’s former and current staff members said they had confronted “racism, fear and intimidation” on the set. Several staff members also said producers had sexually harassed them. Warner Bros. investigated the workplace and found “deficiencies.” Three high-level producers were fired, including Ed Glavin, an executive producer; Jonathan Norman, a co-executive producer; and Kevin Leman, the head writer. Ms. DeGeneres apologized to her staff before addressing her viewers in September.

Some observers believe the accusations may have weakened Ms. DeGeneres’s relationship with her audience. The host built her show as an oasis from the outside world, a place of goofy dancing, light jokes, cash giveaways to surprised audience members and high-wattage celebrity guests. Several years ago, she adopted “be kind” as her motto, in response to the suicide of Tyler Clementi, a gay college student who took his own life after being bullied.

“Her brand is not just being fairly nice — it is ‘Be Kind,’” said Stephen Galloway, the dean of Chapman University’s Dodge College of film and media arts. “She’s chosen two words to stamp herself. You cannot have hypocrisy better defined than when you’ve chosen those two words to define yourself and everyone is seeing the opposite is true inside your show.

“The reason the incident with the producers was such a difficult and perilous moment is it’s the first time where something surfaced to indicate that a family — Ellen’s own professional family — was dysfunctional,” he continued.

Ms. DeGeneres referred to her motto in her on-air apology. “Being known as the Be Kind Lady is a tricky position to be in,” she said. “So let me give you some advice. If anyone is thinking of changing their title or giving yourself a nickname, do not go with the Be Kind Lady.” She added that she was indeed the cheerful person she appeared to be on television, but was also someone who experienced moments of sadness, anxiety and impatience.

In addition to her daytime show, Ms. DeGeneres is also a prime-time star for NBC — and her show for that network, “Ellen’s Game of Games,” also a Warner production, has lost 32 percent of its viewers this season, as well as 35 percent in the adult demographic important to advertisers.

Even with the complications affecting all talk shows during the pandemic, “Ellen,” with its loss of 43 percent of its audience, has suffered a steeper decline than its rivals. “Dr. Phil” is down 22 percent, and “The Kelly Clarkson” show has lost 26 percent of its viewers. Kelly Ripa and Ryan Seacrest’s show has lost just 3 percent, and “Tamron Hall” is down 9 percent.

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