In a stunning deal that will cause many ripple effects throughout the industry, AT&T announced that it will spin off WarnerMedia into a new company that will join forces with Discovery Communications. The proposed new venture would combine HBO Max, Warner Bros, CNN, TBS, TNT, Cartoon Network and more with Discovery Plus, HGTV, Food Network, TLC, OWN, among others. The new company, if approved by regulators, will be run by current Discovery CEO David Zaslav, though 71 percent of the venture will be owned by AT&T stockholders.

According to Next TV, AT&T will receive $43B worth of cash and debt as part of the proposed merger. It’ll also likely signal the end of the telecommunication giant’s venture into the media space, just three years after it bought WarnerMedia for $85B. Estimated revenue for the new company is expected to be $52B by 2023.

There was always expected to be more consolidation within the entertainment industry as everyone adjusted to the streaming future. People have a limited amount of money to spend on content. Not everyone was going to be able to compete, but this announcement is still double-take level surprising. HBO Max reportedly has a subscriber base of almost 45M. That might be solidly behind Netflix and Disney Plus, but it’s still a really big number. With the controversial announcement that HBO Max was going to stream all new release Warner Bros movies on its service to correspond with their theatrical releases, most assumed AT&T was playing the long game in order to attract as many subscribers as possible, even if it meant sacrificing some short-term revenue.

For Discovery Plus, however, the desire to consolidate is a bit less surprising. The company has put a lot of energy and a very aggressive ad campaign into launching its new streaming service, and while there has been good buzz, there are reportedly only about 15M subscribers. That’s obviously very impressive for a company with a portfolio of largely niche cable channels, but it’s not enough to be considered on the A-tier of streaming players.

It’ll be awhile before we know all of the details here or what the implementation will look like. Bloomberg first reported the companies were in talks to merge some assets this weekend and suddenly it was being talked about as a completed agreement. That being said, it’s obviously very interesting that the new company will be run by the current Discovery CEO, which seems to be a signal that AT&T, despite its shareholders owning much more of this proposed venture, recognizes the need for a new direction. Exactly how that new direction will look, however, is unclear.

Also unclear is how this may affect the HBO Max plan to release all of Warner Bros movies directly to the streaming service. That was clearly a long-term strategy play, but with theaters opening back up and someone new leading the charge, it’s anyone’s guess what the service will do moving forward, though it currently offers a ton of great content. There are also questions around what role CNN might play, as well as other cable channels.

Regardless, consolidation was coming. We all knew there was going to be more movement. This may not have been a likely outcome, but there’s something about this that does make sense. We’ll bring you more details when they’re available.

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