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Discovery and AT&T mega-merger triggers speculation around which media giants are next

Data: Yahoo Finance; Chart: Andrew Witherspoon/Axios

The mega-merger of Discovery and AT&T media assets is likely to trigger a chain reaction of other media giants forming ever bigger combinations.

Why it matters: There was a time when most Americans got their news and entertainment from three broadcast networks, a handful of Hollywood studios and their local paper. Today, Americans get content from hundreds of different sources, but they're increasingly being gobbled up by the same owners.

Between the lines: In the hours following the announcement of the new media behemoth that includes a combination of WarnerMedia and Discovery, insiders began to speculate which would be the next big deal.

  • "I've got to think that Comcast has a war room in downtown Philly where they're all trying to figure this out," a former WarnerMedia executive tells me. "I wouldn't be at all surprised if we haven't heard the last from (Comcast CEO) Brian Roberts on this thing either," he said, noting that Comcast has a history of injecting itself into deals with higher offers.
  • "Comcast/NBCU and ViacomCBS were already small. They just got smaller," another top media executive said. There's been speculation that the two companies could merge, although they would need to figure out some carve-outs. (Regulation forbids one firm from owning two broadcast networks.)

Be smart: While legacy media companies play hot potato with washed-up cable networks and movie studios, tech giants continue to grow bigger, and rarely by buying up their legacy competitors.

  • Reports surfaced Monday that Amazon is eyeing MGM Studios for $9 billion — pocket change for the tech giant. But such a deal is the exception, not the rule.
  • Tech giants have largely avoided buying media companies to avoid the cultural clashes their telecom competitors have long risked with pricey media deals.
  • AT&T is offloading WarnerMedia less than three years after buying it. Verizon sold AOL and Yahoo for half of the value it purchased it.

Yes, but: With few independent media assets left, the question then becomes how much further will existing media giants need to consolidate to feel like they can adequately compete for the attention of people hooked on streaming.

  • Data shows the average number of services a consumer is willing to subscribe to is just 4, and they are willing to pay on average $40 a month.

What to watch: The WarnerMedia-Discovery deal suggests a new wave of mega-consolidation is upon us, should regulators allow it.

  • Paul Gallant, one of the top media regulatory analysts in D.C., said in a note to clients on Monday: "Warner/Discovery is stepping into an increasingly aggressive and populist Democratic environment, especially on antitrust." 
  • He noted that the WarnerMedia/Discovery deal "could be the DOJ’s first big merger test under Biden, so it carries incremental risk from the DOJ possibly looking to signal a fundamentally new approach to antitrust enforcement."

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