Filed by Discovery, Inc.
pursuant to Rule 425 under the Securities Act of 1933
and deemed filed under Rule 14a-12
under the Securities Exchange Act of 1934
Subject Company: Discovery, Inc.
Commission File No.: 001-34177
Date: September 21, 2021
The following communications were made to the public by David
Zaslav, President & CEO of Discovery, Inc. during the Goldman
Sachs Communcopia Conference on September 21, 2021
David M. Zaslav
President & CEO, Discovery, Inc.
….
So, it's a very exciting time. And for me, at least, I think having
spent 16 years at Discovery and building Discovery in the U.S. and
taking it around the world, this is a huge moment for us at
Discovery and for me, the months we spent with John Stankey talking
about why this deal makes sense, why our content together with the
Warner content, we believe creates the most compelling menu of IP.
And I think this business starts with IP. It starts with great
content that people love.
….
And so I think the thing that I'm most excited about is the more
that I look at what Warner has, the more I look at how much time
people are spending with our product, discovery+, the number of
hours that they're spending with discovery+, the fact that our
roll-to-pay is still 80% or higher, and the churn is so low, that
we have great content, a library almost as big or bigger than
Netflix, and then you look at what Warner Bros. has and what HBO
has and what Ann and John and Casey and Jason have been doing, with
all the great movies and series that together, I think we have the
best IP menu in the world. And it's two great
companies.
And so, I think we're really extremely well positioned for success.
We've got a lot of execution to do. The deal right now, it feels
very good. It's still on track for mid-2022. There's nothing in the
process that has surprised us thus far, and we continue to work
constructively with regulators. And so, we're already really
working hard on what this company will look like.
.…
What we already have on our side, we have our integration team. We
have over 182 work streams going. We've been working very hard
on our working capital and driving our free cash flow and
positioning our company to be ready, so when this deal does get
approved and we do close, that we're ready to go.
And a big part of that, and we've been working on this for over
four months now, is we've now finalized our go-to-market strategy,
and it feels really compelling. We have been at the
direct-to-consumer business for several years in Europe and in the
U.S. on a smaller niche basis. We've learned a lot from discovery+.
We've learned a lot from how it's working in Europe, and we've
finalized our go-to-market strategy. We think it's compelling. We
think we have an offering that's unmatched with appeal to almost
every demo. And it's not appropriate for us to reveal it now, but
we have been working very, very hard on it. And now we're going to
get ready to continue to position ourselves so that when we close,
we can affect that strategy and drive ourselves onto every device
around the world.
.…
David M. Zaslav
President & CEO, Discovery, Inc.
Sure. Now that we've finalized our go-to-market strategy for when
our deal closes, we're starting to think of things
differently.
.…
So, I think we continue to do well, but the way that we're
modulating it and the way that we're launching it, we're now being
much more mindful of the fact that when this deal closes, we think
we'll have the most comprehensive and most compelling offering, and
we don't want to be confusing. But at the same time, we want to
take advantage of the fact that right now, HBO's in 48 million
subscribers in the U.S. and Netflix is in 60 million. And we have a
lot of subscribers in the U.S. as well. And so, when we do an
offering together, we think after close, that we'll have a very
significant footprint here in the U.S.
How do we maintain that? I know that Warner is working very hard on
continuing to build their engine. But we just want to be
thoughtful. We don't want to be confusing, and we also want to put
ourselves in a position for a shock and awe global strategy, when
you look at the menu, the diversity, the power of the content that
we have in one place when this company comes together.
.…
David M. Zaslav
President & CEO, Discovery, Inc.
Look, we're still going forward. We're just being thoughtful
and mindful of the fact that -- and we will share it with you at
the appropriate time - what we believe is a very compelling
go-to-market aggregate strategy that highlights the strength of
these two great companies coming together, and we're just being
mindful of that.
So, we're on track for the new markets to come. But we're looking
at those markets. We're looking at our approach, and we're looking
at the way that we -- the way that we attack it with the idea that
in mid next year will be a new company. Next year, we look at
things like -- and we have this in our plan. The Olympics was very
effective for us. As we look at how do we integrate this new
product, the Olympics are coming up next year. We continue to see
that adding sports in Europe is very compelling for us. We're
anxious to see how to sports work for Warner in Latin America. We
don't have access to a lot of that data. But we're just being
more thoughtful and mindful now that we have a clear strategy of
what we will do, and we will do it quickly once we close on the
direct-to-consumer side.
Just one other point because I think what differentiates this
company and gives it so much diversified strength is if we are able
in this go-to-market strategy, if we're here two years from now,
we're able to grow this product globally to 200 million subscribers
or three years from now. So, Netflix will be a global
direct-to-consumer product that nourishes and appeals people in
every language. We will be, Disney will be and maybe others will be
as well. But if you look at the Warner Bros. Discovery company, in
addition to that, having the Warner Bros. motion picture business
on top, I'm here in L.A. And this week, I'm meeting with over 50
people in the business. And a majority of them, when I say why are
you here? They came here because of the motion picture business.
They came here because of the magic of going to the movies and the
lights went out, the phone goes off and there's that big screen and
its magic. In some, it affected the culture. It affected them in a
way that they saw themselves, and they came here to tell stories to
try and affect the culture.
And when the power of having a company that has a strong streaming
service, together with a motion picture business that will be 100
years old in 2023 that has IP from DC Comics, Batman, Superman,
Harry Potter, as good or better kids IP than anybody in the world,
a library as big or bigger in movies and
scripted, Game of Thrones, HBO, when you look at that, this overall
company of streaming and Warner Bros. together, it's just extremely
appealing. And ultimately, you need the best talent to
continue to create the best IP so that you can nourish an audience
around the world. And I think it is a unique and compelling
combination of having a strong Warner Bros.
So, if you're talking to talent, writers, directors, producers and
you can work with them on opening a motion picture everywhere in
the world. You could work with them on a movie for a streaming
service. You could work with them on a series to put on a streaming
service and carry it around the world or you could work with them
on a product to your traditional business. It's a full ecosystem.
And I think that makes Warner and Discovery as a combination,
really unique, with real versatility and optionality.
And finally, there are mostly two companies in the business. When I
was at NBC, we had must-see TV on Thursday night. But Jack Welch
said to me, after Don Omar and Warren Littlefield, brilliant guys,
he said, "This isn't must-see TV. It's Warner Bros. TV. And I
met with Chuck Lorre the other day, and you look at the rating
points from CBS that came from Big Bang, Two and a Half Men, Mom,
that was all Warner Bros. And so, Warner Bros. to John Stankey and
Jason and Ann's credit because they continue to be so successful
with Ted Lasso, I believe they're the strongest maker of television
in the world.
Disney is a great maker. But ultimately, there are a lot of other
media companies that are pickers. And so, they can pick great
content, but Warner makes great content. And that gives great
optionality. Warner can continue to make content. And if there are
four or five 5 bidders, they can sell it for a lot of money, and
that will generate free cash flow and EBIT. Or they
also have the ability to move content onto their own platforms at
much better economics because they're not bidding against anybody.
They're able to put it on their own platform. Or finally, if
the world changes and more people get like Disney, where they're
producing their own content mostly for themselves, then Warner has
the optionality of being the greatest maker of content with the
motion picture business, a streaming business and an existing very
strong and strengthened traditional business.
And so, it is versatile. This company can modulate and John Stankey
and Jason and Ann are doing that right now. But also, in terms of
risk, if you're some of these other companies, then you're asking
the few companies that are makers - are you going to continue to
sell to me? And Warner can do that, but Warner can also -- if the
world changes, they have the factory of content that they can put
on their own platforms, and that's compelling.
.…
David M. Zaslav
President & CEO, Discovery, Inc.
…
And candidly, in all the research we've done, we find that the
appealability of the content, how easy people can get around it,
how much they like it, that's not our problem. It's off the
charts. The question that we have is, do we have something that
people are going to leave dinner at 8:00 and go, "I’ve got to go
because I got to see this."? Do we have enough of the explosive
content that's going to bring a huge number of people in? And the
answer is in the U.S. at least, we don't. We don't have Batman. We
don't have Elvis with Tom Hanks. We don't have the White Lotus. We
don't have Game of Thrones. And so, the combination of the two, we
have all this unbelievable nourishment. So, when somebody comes in,
they're staying. And when we look at how much they use our product
versus how much they use other streaming services, we're blown away
by how much time they spend with us.
And so, one of the theories of the case for John and I in looking
at this transaction is Warner has some of the most explosive
content in the world. And what Casey is doing at HBO in terms of
generating cultural heat, and I got to get home at 8:00 to see the
next episode of Mare or Hacks or The Other Two or White Lotus. I
was at dinner last night and what people are talking about White
Lotus for half an hour, episode by episode. We don't have that at
Discovery. On the other hand, people underestimate what we have.
because maybe you're watching White Lotus at 8:00 at night, but
you're watching Chip and Jo and you're watching Ina Garten all day
long.
And so, the idea is that together, you have a much more compelling
product, and you have a product that's going to have very little
churn because there's so much nourishment. That's one of the things
we learned in Europe is you need a lot of content, and you need a
lot of content that people love so that they go do it on a regular
basis and when they think about which service do I need to keep
that we're at the top of the list.
We believe more strongly than ever that the combination and the
fact that HBO is getting stronger and stronger, and you look at the
slate of what Toby and Ann have coming up and Jason, that we think
this combination is really, really going to be compelling. And
that doesn't even speak to the other differentiation of this
company, which is news and sports.
And we have news in Europe, and we've been playing with news in
Poland. We've been playing with it in our direct-to-consumer
product. We've been trying to understand how do people relate to it
in a subscription service? And as we've finalized our go-to-market
strategy, in a number of markets, it will include sports. And the
question also with news as CNN being the leader in news around the
globe, and cnn.com being the leading web news service or digital
new service, that gives great optionality. As we look to our left
and right of who has what IP, in Poland, people are going every day
to news. What does that do to churn when people go every day to see
what's going on, on their product, on their phone?
And so, I think that the overall menu that Warner has together with
Discovery, it's going to provide a lot of nourishment and a lot of
optionality for users, but also for us to figure out new ways to
nourish the audience and differentiate this go-to-market
strategy.
….
David M. Zaslav
President & CEO, Discovery, Inc.
I think we're going to start with the most compelling IP. We have
as good or better of an IP library, and the depth of that library
with our entire library, and they have one of the strongest and
most compelling movie libraries, the HBO library, the documentary
library. So, I think the overall IP is as strong or
stronger.
And the other thing that we have is we have a 15- to 25-year
library of in-language content in almost every country in the
world, which was one of the big appeals for John in looking at our
company. And we have teams on the ground all over the world. And
we're able to promote because we have 10 to 12 channels in every
country in the world, which will add to the overall
strategy.
So, I think that we have some advantages because we have great IP,
because we're on the ground everywhere in the world. If you
need to talk to the Verizon of Italy or the broadband distributor
in Germany or in Brazil, we have teams on the ground in every
country in the world. We know all those players. And so, I think
those are advantages.
The disadvantage is the fact that Netflix is already at scale. And
Disney has gotten off, to their credit, to an extraordinary start
and their product isn't rolled out, but they are scaling. Now the
good news is that Jason and Ann are scaling as well. They're in 48
million homes in the U.S., and Netflix is at 60 million, and they
continue to grow as we continue to grow. But I think one of
the priorities is going to be, as soon as we close, and that's why
I feel so good about the fact that we now have a strong and
comprehensive go-to-market strategy that we're going to have to
move very quickly, and we're going to have to move quickly also to
get as many great people and great talent at this company as
possible to continue to build that IP library so we have
sustainable growth with great content.
.…
David M. Zaslav
President & CEO, Discovery, Inc.
.…
So, as I started with, the hardest thing to do, and you can't
create it from scratch, is have great, great IP, even if you spend
a massive amount of money. Look at some of these streaming
services, some of the best streaming services. If you bare them
down and say, "Okay, what sustainable IP do you have?" You might
have a great series, and then the series is over. But do you have a
Harry Potter? Do you have an Aquaman? Do you have a Batman? Do you
have a Game of Thrones? That kind of sustainable global appeal IP
that Disney has, that Warner has, that's explosive, we have it
maybe in a less explosive way. But when you look at Planet Earth
and you look at a lot of our home and food and science content, it
is well known all around the world. And so that's our job is to
figure out how to do it. But I think that the ad-light product
could be a very big differentiator and could be a
huge EBIT and free cash flow driver for
us.
.…
David M. Zaslav
President & CEO, Discovery, Inc.
.…
So, I think the bigger challenge is in the U.S. where cable is much
more expensive. And it's one of the reasons why I think having this
existing combination come together when it does on track for mid
2022 is going to be very helpful to us for optionality. But also,
it solidifies the legacy business for us. One of the exciting
things about the Warner business is they have a lot of live
content, live news, live sports. We're kind of everything else. And
so together, I think it solidifies us on the legacy business side
as well, and that will be helpful.
And that is another differentiator. This will be a very
big free cash flow company. And so yes, you'll have a
streaming service. You have a great Warner Bros, you have a big
maker of content that can sell or distribute to itself. But we
also have a very big legacy business that isn't going away that
we're really good at, that we're driving efficiency in, that we're
driving working capital to drive free cash flow. And when
you look at that overall business, it generates massive free
cash flow that we think within two to three years our leverage
should be below three, and then off we go.
And so I think that combination, that stability of having a
solidified legacy business that's generating efficiency
and free cash flow, together with this new business that if
we're successful, 20 years from now, people will be watching these
go-to-market product or products on every device in the world in
every language, and it will be the way my grandchildren are seeing
a lot of the content that they love. But it's a very balanced
factory, and it's a very balanced engine that you can diversify in
terms of pushing or pulling. Even the ability over a period of
years, if things stabilize and get better, you can put more money
on the legacy business to drive value, if we're sitting here five
years from now and things
are declining quicker, you can take content from those platforms
and move them to the streaming service. So, I think it's great
optionality .….
Where to Find Additional Information
This communication does not constitute an offer to sell or the
solicitation of an offer to buy any securities or a solicitation of
any vote or approval. This communication may be deemed to be
solicitation material in respect of the proposed merger between
Discovery Inc. (“Discovery”) and Magallanes, Inc. (“Spinco”), which
will immediately follow the proposed separation of Spinco from
AT&T Inc. (“AT&T”) (together, the “proposed transaction”).
In connection with the proposed transaction, Discovery intends to
file a registration statement on Form S-4, containing a proxy
statement/prospectus, with the SEC. In addition, Spinco expects to
file a registration statement in connection with its separation
from AT&T. INVESTORS AND SECURITY HOLDERS ARE ADVISED TO READ
THE REGISTRATION STATEMENTS, PROXY STATEMENT/PROSPECTUS AND ANY
OTHER RELEVANT DOCUMENTS WHEN THEY BECOME AVAILABLE BECAUSE THEY
WILL CONTAIN IMPORTANT INFORMATION. Investors and security holders
may obtain free copies of the registration statements and proxy
statement/prospectus (when available) and other documents filed by
Discovery and Spinco with the SEC at http://www.sec.gov. Free
copies of the registration statements and proxy
statement/prospectus, once available, and each company’s other
filings with the SEC may also be obtained from the respective
companies. Free copies of documents filed with the SEC by Discovery
will be made available free of charge on Discovery’s investor
relations website at https://ir.corporate.discovery.com. Free
copies of documents filed with the SEC by AT&T or Spinco will
be made available free of charge on AT&T’s investor relations
website at https://investors.att.com.
Participants in the Solicitation
Discovery, AT&T and Spinco and certain of their respective
directors and executive officers may be deemed to be participants
in the solicitation of proxies in respect of the proposed
transaction. Information about the directors and executive officers
of Discovery is set forth in its definitive proxy statement, which
was filed with the SEC on April 30, 2021. Information about the
directors and executive officers of AT&T is set forth in its
definitive proxy statement for its 2021 Annual Meeting of
Stockholders, which was filed with the SEC on March 11, 2021.
Information about the directors and executive officers of Spinco
will be set forth in its registration statement to be filed with
the SEC in connection with its separation from AT&T. Investors
may obtain additional information regarding the interests of such
participants by reading the registration statements, proxy
statement/prospectus and other relevant materials regarding the
proposed transaction when they become available.
Forward-Looking Statements
Information set forth in this communication, including financial
estimates and statements as to the expected timing, completion and
effects of the proposed transaction between AT&T and Discovery
constitute forward-looking statements within the meaning of the
safe harbor provisions of the Private Securities Litigation Reform
Act of 1995. These estimates and statements are subject to risks
and uncertainties, and actual results might differ materially. Such
estimates and statements include, but are not limited to,
statements about the benefits of the transaction, including future
financial and operating results, the combined company’s plans,
objectives, expectations and intentions, and other statements that
are not historical facts. Such statements are based upon the
current beliefs and expectations of the management of AT&T and
Discovery and are subject to significant risks and uncertainties
outside of our control. Among the risks and uncertainties that
could cause actual results to differ from those described in the
forward-looking statements are the following: (1) the occurrence of
any event, change or other circumstances that could give rise to
the termination of the proposed transaction, (2) the risk that
Discovery stockholders may not approve the proposed transaction,
(3) the risk that the necessary
regulatory approvals may not be obtained or may be obtained subject
to conditions that are not anticipated, (4) risks that any of the
closing conditions to the proposed transaction may not be satisfied
in a timely manner, (5) risks related to potential litigation
brought in connection with the proposed transaction, (6) the risk
that the integration of Discovery and Spinco will be more
difficult, time consuming or costly than expected, (7) risks
related to financial community and rating agency perceptions of
each of AT&T and Discovery and its business, operations,
financial condition and the industry in which it operates, (8)
risks related to disruption of management time from ongoing
business operations due to the proposed transaction, (9) failure to
realize the benefits expected from the proposed transaction, (10)
effects of the announcement, pendency or completion of the proposed
transaction on the ability of AT&T, Spinco or Discovery to
retain customers and retain and hire key personnel and maintain
relationships with their suppliers, and on their operating results
and businesses generally and (11) risks related to the potential
impact of general economic, political and market factors on the
companies or the proposed transaction. The effects of the COVID-19
pandemic may give rise to risks that are currently unknown or
amplify the risks associated with the foregoing factors.
Discussions of additional risks and uncertainties are contained in
AT&T’s and Discovery’s filings with the SEC and in the Form
S-4, containing a proxy statement/prospectus, to be filed by
Discovery and the registration statement to be filed by Spinco in
connection with the proposed transaction. None of Discovery,
AT&T or Spinco is under any obligation, and each expressly
disclaims any obligation, to update, alter, or otherwise revise any
forward-looking statements, whether written or oral, that may be
made from time to time, whether as a result of new information,
future events, or otherwise. Persons reading this announcement are
cautioned not to place undue reliance on these forward-looking
statements which speak only as of the date hereof.
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