When AT&T acquired Time Warner in 2018, the ultimate goal was to use the pipes, data and content of the combined entities to build a TV advertising ecosystem that could take on the likes of digital ad giants Facebook and Google. Just three years later, as the telecom giant strikes a deal with Discovery to merge its media assets, the virtues of marrying delivery, data and content have seemed to all but crumble.

In the years since AT&T initiated acquisition talks with Time Warner, traditional media companies have doubled down on developing streaming platforms to compete with the likes of Netflix and Hulu. A deal between AT&T and Discovery—which would combine unscripted programming from Discovery networks like Food Network and HGTV, with premium scripted content from WarnerMedia’s HBO, TNT and TBS, as well as news and children’s entertainment—would create a content powerhouse to feed emerging streaming platforms from both brands.

As part of the deal, AT&T will receive $43 billion cash and debt securities, and WarnerMedia will be spun off and combined with Discovery, in an all-stock move called a Reverse Morris transaction. A new name of the company will be revealed possibly later this week, Discovery CEO David Zaslav, who will lead the new company, said in an investor call. 

The news of a deal comes as both companies prepare to pitch the ad marketplace during their upfront presentations this week. For advertisers, the merger means the pool of media sellers will shrink once again, creating even fewer competitors.

“The less options we have the harder it is to deal with the four of these mega-media companies that are left,” says David Campanelli, chief investment officer, Horizon Media.

The combined entities will represent 24% of all linear inventory available in the marketplace, says Dave Morgan, CEO, Simulmedia, which helps brands improve their TV ad targeting. In streaming, it would be about 15% of the premium streaming video ad inventory with the capacity to get a lot bigger fast, given WarnerMedia has not yet rolled out its ad-supported version of HBO Max, and Discover+ is still new to the landscape.

AT&T’s media assets combined with Discovery would boast $12 billion in ad revenue, making it the sixth-largest seller of advertising globally, according to Brian Wieser, global president, business intelligence GroupM.

"Where Facebook is competitive on pure-play scale, the combined entity will be competitve on the high-quality content scale and I think that is compelling right now," says Lou Paskalis, chairman of the MMA Global Media and Data board. "The audiences most advertisers want, Discovery will have in the portfolio." 

And, as more brands look to do business with fewer partners due to the complexity of business, the two brands offer another one-stop shop, Paskalis adds. 

Individually, neither WarnerMedia nor Discovery was as important as other players like Disney or NBCUniversal in terms of setting the advertising marketplace, according to an agency executive. But combined they will be a force to reckon with as they new company decides how they combine their TV sales forces. 

AT&T is the latest teleco company to get out of its media business, with Verizon announcing the sale of its media assets to Apollo Funds earlier this month, and T-Mobile shutting down its planned TV service before it even launched.

"When you look at this and Verizon situation, the parallel here is it is hard for these companies to horizontally integrate," Paskalis says. "There was a belief that both of these companies—Verizon and AT&T—could extend privacy policies to do more one-to-one marketing of their content offerings to users based on behavior. ... It was a utopian dream to own the customer relationship." But, ultimately, the daunting task of getting new privacy permissions just wasn't worth it, he says. 

Advertising was one of the major lynch pins in the original deal that prompted AT&T to acquire Time Warner. The intention was to build an automated advertising platform that could do for premium video and TV advertising what search and social have done for digital advertising, AT&T outlined in a press release discussing the Time Warner deal. The acquisition combined AT&T’s pipes to distribute content and a boatload of data from its 159 million wireless and 40 million pay-TV subscribers, with content from networks like TNT, TBS, CNN and HBO. In this way, AT&T was positioning itself to be one of the few companies that could follow consumers across TV screens, mobile phones and other digital devices.

The company also built out the ad tech unit Xandr to create a marketplace to automate the buying process. AT&T will retain Xandr following the merger, AT&T CEO John Stankey said during an investor call.

"There was nothing wrong with the dream—it remains right—it has to do more with the culture of the organization," says a person familiar with the the inner workings. "This relegates AT&T to behave and continue to be a telephone company." 

AT&T began unraveling that vision earlier this year when it spun off its pay-TV business. Shedding DirecTV and the rest of its pay-TV assets stymies its efforts around addressable advertising, or the ability to target ads at a household level. Addressable advertising has predominantly been confined to the two minutes of local ad time per hour that pay-TV operators can sell to marketers. But AT&T’s ownership of WarnerMedia was expected to open up the national ad inventory on those networks to be addressable-enabled.  

“I think the miscalculation with the AT&T and WarnerMedia merger is that the valuable asset AT&T had was DirecTV and the 20 million households or so they had viewership data on, with the ability to target those home. But DirecTV has been in such decline with losses of households, it became much less valuable from a data, and even more from an ad-delivery, standpoint,” Campanelli says. Lack of scale has always been the biggest obstacle to addressable advertising, and even with AT&T owning both DirecTV and TNT and TBS, the promise of being able to sell national addressable inventory was still limited to those homes.

And from a data perspective, Campanelli says DirectTV’s set-top-box data was going to power much of what WarnerMedia could do from and advanced advertising and addressable standpoint, “but over the past few years we’ve seen greater adoption and acceptance of ACR [Automatic Content Recognition] data that provides similar insights and is more accessible, which helped replace the need for set-top-box data.”

“Advanced advertising was the sizzle in that deal,” Morgan says about the AT&T-Time Warner agreement. “What history tells us is that wasn’t the wrong story, but it wasn’t the most important story. What became the most important story, from the time of the idea was conceived until it was approved by federal regulators, was that the world discovered streaming, and streaming became a bigger part of it. In that world, for AT&T to be competitive, it wasn’t enough to spend a couple of billion dollars on advanced advertising, they would have to spend tens of billions on streaming delivery infrastructure and content.”

How is the TV industry responding to the streaming wars? On May 24 and May 25 hear from ad sales leaders, agency executives and top brands on the state of the TV ad marketplace and how streaming is poised to reinvent the $20 billion upfront marketplace. RSVP here.