Reporters are falling over themselves overestimating the value of AT&T’s (NYSE:T) deal with Discovery Networks (NASDAQ:DISCA, NASDAQ:DISCB), but DISCA and T stock are both dropping.

The nominal value is $43 billion. The two partners are combining assets in a new company, with AT&T shareholders getting 71% of it and Discovery shareholders the rest. Before the deal Discovery had a market cap of $18.01 billion.

While the Financial Times called this a “$150 billion” deal, investors quickly concluded it’s anything but. Discovery dropped about 5% on the news, AT&T about 6%. AT&T opened on May 18 at $29.88/share, a market cap of $213 billion.

Selling My T Stock

My own decision to sell AT&T on May 17 was driven by something hidden in the announcement. That’s a cut in AT&T’s dividend, which had been yielding 6.5%. “AT&T expects an annual dividend payout ratio of 40% to 43% on anticipated free cash flow of $20 billion plus,” the release states. That implies about $8 billion going to dividends. The company now has 7.14 billion shares outstanding, so its $2.08/share dividend costs $14.85 billion. Figure a nearly 50% cut.

Optimists say that, as AT&T shareholders, they get most of the new company, and the deal cuts debt substantially. AT&T originally paid $85 billion for what was then called Time Warner in 2018.  The magazines were sold, and the company is now WarnerMedia.

The spin-off is the culmination of a decade of stupidity launched by former AT&T CEO Randall Stephenson. He claimed to understand the cloud but instead of investing in the technology chose to get “more value” from it by buying content. His 2014 acquisition of DirecTV for $67 billion was unwound in March to private equity. The Discovery deal is modeled on it, with AT&T getting 70% of the spin-out and cash to reduce debt.

AT&T needs cash because Stephenson’s stupidities have left its balance sheet in tatters. There was $152 billion in debt on the books at the end of 2020. AT&T agreed to pay $23.4 billion for new 5G spectrum in February. It will cost billions more to build that out.

Buying Zaslav

On the other side this deal culminates a long battle by CEO David Zaslav to return to the top of the cable TV pile. He had been running several networks for NBC Universal before its acquisition by Comcast (NASDAQ:CMCSA), including MSNBC. The AT&T deal gives him control of its rival, CNN, along with the Turner networks and HBO.

Zaslav is now the one making grand promises. He claims the combined company can win 400 million streaming subscribers, which is twice what Netflix (NASDAQ:NFLX) now has. Discovery currently has 15 million subscribers. AT&T’s HBO Max has 44.2 million.

Rivals are well ahead and charging full price. Netflix is at over 200 million. Amazon (NASDAQ:AMZN) is at 150 million. Disney (NYSE:DIS) has over 100 million. They’re not standing still. Amazon is reportedly preparing a $9 billion offer for MGM.

The Bottom Line

What no one in media will admit is that the limit on streaming isn’t money, but time.

You could buy all the major streamers and spend as much as you now spend on cable. But a cable channel gives you, at most, a few hundred options. Streaming offers entire libraries, TV, and film, old new, and live.

For now, the new company remains tied to the cable model, where operators bundle channels and viewers get a schedule. But even in “skinny bundle” services like Alphabet’s (NASDAQ:GOOGL, NASDAQ:GOOG) YouTube TV, these ties are fraying, as digital video recording is often a standard feature.

Smart investors know the difference between promises from cable and streaming performance. That’s why I’m avoiding both these stocks until I see clarity.

On the date of publication, Dana Blankenhorn held a LONG position in AMZN. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Dana Blankenhorn has been a financial journalist since 1978. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available at the Amazon Kindle store. Follow him on Twitter at @danablankenhorn.