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Warner Bros. Discovery is Hollywood’s newest media giant, but challenges loom

Discovery's David Zaslav in a polo shirt and sports vest in the flagstone entry of a hotel.
David Zaslav, Discovery’s chief executive, at a media finance conference in July 2019.
(Drew Angerer / Getty Images)

Two weeks after AT&T announced it was spinning off WarnerMedia to the much smaller Discovery, executives flocked to the Warner Bros. lot in Burbank for a glimpse of their future — and the man who would lead them there.

Discovery Chief Executive David Zaslav, the architect of his company’s audacious $45-billion takeover of WarnerMedia, sought during a Tuesday town hall meeting to reassure battle-weary troops that — unlike their current parent, AT&T — Discovery is all about creating programming that audiences crave.

The hard-charging 61-year-old executive stressed his respect for the Turner networks, including CNN, as well as HBO and the Warner Bros. film and TV studio, which has churned out cultural touchstones for nearly a century.

“We’re not coming in here thinking that we know all the answers,” Zaslav told the crowd of about 75 film and TV executives admitted into the studio’s Steven J. Ross Theater, according to a person who saw a video stream, which was watched by hundreds of other WarnerMedia workers around the country. “There’s a ton we don’t know,” Zaslav added, “and there’s certainly a whole bunch that you know that we don’t know.”

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Zaslav’s message was well received but also underscored the myriad challenges he will face if regulators approve Discovery’s effort to buy a company that is more than twice its size.

New York-based Discovery, which owns such popular cable channels as Food Network, HGTV, Animal Planet and OWN, is scrambling to adapt as consumers ditch cable TV for streaming platforms. Discovery derives most of its revenue from cable TV channels. Even after the merger, an estimated 80% of Warner Bros. Discovery’s pre-tax earnings in 2024 will still be tied to its legacy cable channels, research firm MoffettNathanson said in a note.

And Discovery must sit on the sidelines in a fast-changing media environment as the merger moves through the government’s review, which could take more than a year. Discovery has said it hopes to complete the takeover in mid-2022, but for now the companies will continue to operate as separate entities.

The regulatory delay will give competitors Netflix, Amazon, Disney, Comcast and ViacomCBS more time to get traction for their streaming services, which could leave WarnerMedia’s HBO Max and Discovery+ at a disadvantage.

“Both of these companies are at critical junctures in building their [streaming] products, and now they are going to be focused on other things,” Cowen & Co. media analyst Doug Creutz said. “David [Zaslav] would say, ‘Hey, we can walk and chew gum at the same time’ and, on the Discovery side, they probably can — but it’s a different matter on the AT&T side. Are they going to be able to roll out HBO Max and get it to the level of success they want when everyone is so distracted?”

Creutz noted that after Rupert Murdoch announced he was selling much of his entertainment company, 21st Century Fox, to Disney, the existing Fox businesses suffered as executives wondered about their place in the new regime and the merger slogged through nearly a year of regulatory reviews. During the interim, Fox’s “film business basically collapsed,” Creutz said.

Another key challenge, according to analysts, is trying to figure out how to position their respective streaming services — including an expected offering from CNN — to attract millions of customers in the U.S. and abroad.

“The major challenge I see is going to be having a comprehensive offering — bringing together a platform that’s going to be competitive in streaming, and I don’t know that they necessarily have a lot of time to do that,” Tuna Amobi, an analyst with CFRA Research, said. “To be successful in this race, you have to have a very credible global strategy.”

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Since AT&T absorbed Time Warner for $85 billion in June 2018, there have been multiple management shake-ups, more than 2,000 layoffs and controversial moves that have tested the faith of Hollywood. AT&T pulled the plug on the beloved classic movie streaming site FilmStruck and then bet the company on HBO Max, a streaming service that got off to a rocky start a year ago due to a high price point ($14.99 a month) and a shortage of original programming. Morale plunged. This week, WarnerMedia introduced an HBO Max version with advertising and a lower price point ($9.99 a month) in an attempt to lure subscribers.

The company also has been grappling with the fallout from its much-maligned decision to release all of Warner Bros.’ 2021 films on HBO Max the same day they arrive in theaters, which infuriated powerful producers and directors.

Should regulators approve the deal, Zaslav will become the company’s fourth CEO in less than five years. WarnerMedia’s current chief executive, Jason Kilar, who joined the company just 13 months ago, is expected to depart after the merger is complete.

When the two companies come together, it also will be burdened with an estimated $58 billion in debt. The bulk of that debt will come from the $43 billion payment that will go to AT&T as part of the deal. (AT&T shareholders, at launch, will have 71% of the shares of the new stand-alone company).

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Zaslav has said that he sees $3 billion in cost savings by 2024, which typically means more job losses, causing more anxiety for a workforce that has endured substantial layoffs under AT&T.

“It’s got to be tough to work there right now,” Creutz said.

Analysts also expect some inevitable cultural clashes between two very different companies. Discovery is a giant in unscripted television, while the strength of Warner Bros. and HBO has long been providing premium scripted TV shows and movies.

When it comes to the cost of producing Warner Bros. movies and HBO shows, there might be some sticker shock, media veterans said.

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“David is a content guy — but he’s not a Hollywood guy,” Creutz said. “A lot of Discovery’s success has been running unscripted TV production very efficiently. Scripted content is, by nature, less efficient and more expensive. It’s not, “Hey we need another show about buying and selling houses, let’s flip the cookie-cutter out.’”

Zaslav — who wore a business blazer and khakis — made a good impression during the Tuesday event, according to those in attendance.

He talked at length about his bio: his Brooklyn roots, the moment he realized he had no desire to be a corporate attorney at a big-city firm, his segue to NBC and helping to launch CNBC, and building Discovery into a global company since becoming its CEO 14 years ago.

“Warner Bros. has produced the best content over the last 98 years,” Zaslav told the crowd, according to the person who watched the town hall on video. Warner Bros., with its iconic logo, “is imprinted in all of us,” Zaslav added.

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One senior executive who attended the meeting said: “People respected the fact that he flew across the country to say ‘hi.’ Everyone felt better that he respected the history and legacy of Warner Bros. and the importance of high-quality content.”

Still, there were some head-scratchers. When Zaslav listed the HBO shows he admired, most were produced more than a decade ago, including “The Pacific” (2010), “Band of Brothers” (2001), “Entourage” (2004) and “Sex and the City” (1998). He did give a shout-out to HBO’s current hit, starring Kate Winslet, “Mare of Easttown.” (And “The Pacific” replayed on HBO over the holiday weekend.)

Zaslav’s quick-draw decision to announce the new corporate name, Warner Bros. Discovery, and a temporary logo may also have misfired. Views were mixed on the proposed name and logo. Several saw it as a classy move to put the Warner Bros. name first and bring back the “Bros.” part of the moniker, another nod to the studio’s roots. At least it was less clunky than WarnerMedia, some reasoned.

Several people described the proposed logo as a little cheesy, comparing the yellow, blocky font to the title cards from vintage “Superman” movies and even the 1980s Steven Spielberg TV anthology series “Amazing Stories.”

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The Warner Bros. Discovery logo.
The Warner Bros. Discovery logo.
(Discovery)

After the meeting, and amid ridicule on social media, Discovery executives stressed the logo is preliminary.


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