The Entertainment industry has had a rough 18-month stretch, but will things pick up with the reopening trade now in play?
This week we have heard some important news from both AT&T and Amazon, both vying to become the biggest media companies in the world, in a bid to compete with Netflix and Disney+. We saw both Disney and Netflix’s stocks coming under pressure and the latest Amazon merger news could boost $AMZN’s stock price.
But it has been a tough year for the entertainment space, unless of course you are like AMC Entertainment, the darling of the Reddit “Wall Street Bets” group, which scored amazing 549% gains in just five months.
Back in early 2020, when Covid-19 started spreading, places from Hollywood to Bollywood and anywhere in-between have either been completely shut down or operating at partial capacity.
This closure has led to a seismic shift in the balance toward various streaming services in the movie business.
Movie studios, now unable to display their latest smash hits and trying to recoup at least some of those massive expenses, were in a bind.
Some, like Disney and Warner, have shifted releases into in-house streaming services. At the same time, others were forced to sell off finished movies to giants like Netflix, Amazon, and Apple.
Covid-19 is not entirely behind us, but there are signs of improvement globally, and the entertainment industry is not far behind.
News broke May 16th that two of communication giant AT&T’s media-based assets – WarnerMedia and Discovery are nearing the finalisation of a merger. The new entity, which Discovery CEO David Zaslav will head, will house practically all of AT&T’s sports, media and news and other non-fiction programming.
In the transaction, AT&T would receive $43 billion in a combination of cash, debt securities, and WarnerMedia’s retention of certain debt, and AT&T’s shareholders would receive stock representing 71% of the new company; Discovery shareholders would own 29% of the new company.
The merger will create an entertainment behemoth valued at over $100 Billion to be finalised in mid-2022 if no significant hurdles arise, but it is already impacting the entertainment landscape.
When AT&T purchased Warner Bros., HBO and Turner Broadcasting in 2018, it had minimal impact on its stock price, which remained in the low $30’s per share – before and after the transaction.
But the result of the purchase was a somewhat expected wave of layoffs across all of AT&T’s new divisions. Additionally, Hollywood insiders were worried that such a massive new corporate overlord would have a negative impact on the traditional way of doing business within Hollywood.
It turns out that those “Hollywood Insiders” had a reason for concern.
However, it took a pandemic for the rest of the world to see how unconcerned AT&T was with entertainment or movies.
In early December 2020, Warner announced it would move the entirety of its 2021 release slate to HBO MAX, the online streaming service it officially launched earlier in the year. The decision was a massive, earth-shaking shift of power away from Cinemas and its ripples were severe.
Practically everyone from other Studio heads to filmmakers to theatre chains and owners vowed to avoid further business with Warner unless it reversed its course.
AT&T’s stock price also suffered from the backlash, dropping 2.5% during the month of December.
The general school of thought was that AT&T was a business company and had very little knowledge of the inner workings of the industry, nor did it care very much for those inner workings.
AT&T appeared to be in full money-making mode, even referring to the decision to move movies to HBO MAX as “Project Popcorn” – and not as a term of endearment.
But now, less than three years later, AT&T appears to be admitting that other, more knowledgeable people might be better suited for the helm of their entertainment business.
New CEO Zaslav is viewed as much more of a Hollywood insider, one with a penchant for deal-making, and there is hope he will be able to soothe some of the egos bruised by AT&T’s one-sided decision.
Suppose the new entity truly does take its foot off the proverbial pedal as far as shifting movies towards streaming and away from cinemas. Will other players in the market like Disney or Netflix follow suit? And with Covid-19 now on the decline, will Cinemas manage to return to glory or have new norms de-facto established?
Mergers such as these often impact not only parent companies but also other players in the market. Only time will tell if the new WarnerMedia/Discovery entity will serve as a boom or a bust for Hollywood Traditional or otherwise.
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