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Pedestrians walk by an AT&T retail store on May 17, 2021 in San Rafael, California.

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Canadian television networks face rising costs for U.S. programming and potential loss of popular shows in the wake of WarnerMedia’s merger with Discovery Inc.

Telecom company AT&T Inc. shook up the media industry Monday by announcing a US$43-billion spinout of WarnerMedia, home to HBO and CNN. The unit will join forces with Discovery, which owns lifestyle brands such as HGTV and Food Network, to create an independent global entertainment company.

The union of two major U.S. media players has the potential to disrupt traditional alliances with Canadian broadcasters, as Corus Entertainment Inc. has ties to Discovery, while rival Bell Media, a unit of BCE Inc. , has a long-standing relationship with WarnerMedia.

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“In our view, consolidation and scale of global streaming services is a negative for Canadian legacy broadcasters,” said telecom and media analyst Tim Casey at BMO Capital Markets in a report. “More scale for global streaming ultimately means either less product available for domestic channels or more expensive product, or both of the above.”

Publicly traded Corus owns 33 specialty television channels, five of which buy content from Discovery. Corus also buys programming from WarnerMedia for two of its channels, the Cartoon Network and Adult Swim. Toronto-based Corus also owns the Global television network.

Bell Media’s strategy to win subscribers includes offering HBO Max as part of a partnership with WarnerMedia struck in 2019. Bell Media owns 27 specialty TV channels, including the Crave streaming service, and the CTV network.

“As existing content agreements expire, BCE and Corus will now be negotiating with a single company,” analyst Jeff Fan at Scotia Capital said in a report on Monday. “This may have implications for content costs for each, and the new Warner-Discovery may choose a single partner for Canada.”

WarnerMedia and Discovery are joining forces to better compete with far larger entertainment companies such as Netflix Inc. , Amazon.com Inc. and Walt Disney Co. AT&T said on Monday that the combined companies will spend US$20-billion annually on content, compared with Netflix’s budget of US$17-billion. Over the past decade, viewers have been abandoning traditional cable and satellite TV channels, opting instead for content from streaming services such as Netflix and providers including YouTube.

The increasing scale of foreign entertainment conglomerates raises the issue of how domestic media companies can keep pace. Analysts predict radical transformation could take place in a sector that is tightly regulated by the federal government.

Scotia’s Mr. Fan said: “In Canada, as the global media sector becomes more consolidated, there may be a case to create a larger-scale single Canadian media champion which can better compete and negotiate on a global basis.”

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“Corus has long-standing relationships with both Discovery and WarnerMedia and we look forward to continuing those partnerships in a new capacity,” the company said in a statement. “We have licensing agreements in place with each company and this merger does not impact our network agreements or output deals.” Bell Media said there will be no immediate changes for its specialty channels in Canada because of the U.S. merger, and the network continues to have exclusive rights to HBO programming.

AT&T is the latest telecom company to shed legacy media assets. Earlier this month, Verizon Communications Inc. announced plans to sell its media platforms, including the Yahoo and AOL brands, for US$5-billion to private-equity fund Apollo Global Management Inc.

Shaw Communications Inc. sold its stake in Corus in 2019 for $548-million. The Calgary-based Shaw family still controls approximately 85 per cent of Corus’s voting shares. Between 2010 and 2012, Montreal-based BCE spent $3.4-billion to acquire TV and radio station owner Astral Media Inc. and $3.2-billion to acquire CTV.

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