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Thursday Thoughts…
The goodwill tour has finished, and the executive purge has begun. Here’s who’s up, and who’s out, as Team Zaz assumes full control of the combined (and debt-ridden) Warner Bros. Discovery. Anyone who’s sat with David Zaslav over the past 11 months—and that includes me—has received one message above all: Tell me what I need to know. Despite being a successful media executive for decades, the incoming Warner Bros. Discovery C.E.O. has executed a listening tour for the ages, chatting with everyone from Steven Spielberg to labor experts to lower-level agents. I wouldn’t be surprised if Zaslav interviewed the Polo Lounge custodial crew to determine the Hollywood community’s preferred fragrance of urinal cakes.
A lot of that has been for show, of course. Regardless of whether Zaslav actually takes anyone’s advice for HBO Max, Warner Bros., or CNN, he needs people in the creative community to think he’s been listening to them. Maybe he’ll spend more on content, like he says he will, or maybe he’ll spend less, or maybe he’ll decide that the Game of Thrones spinoff should be a jukebox musical in black and white—but at least he listened. How else would the notoriously frugal proprietor of 90-Day Fiance—someone who’s never really dealt with entertainment unions or top-tier talent, and who actually dared ask producers to take out loans to front their own production costs—be taken seriously? AT&T C.E.O. John Stankey and the phone company functionaries never did that basic ingratiation, and, during its four years of ownership, AT&T was greeted not as enlightened digital colonists but as an invading army of suits.
But now, as Team Zaz actually assumes full control, the $43 billion spinoff is set to close tomorrow, and AT&T’s value-destroying foray into media is unwound, none of that outreach matters much. Zaslav’s goodwill tour might have caused people to be cautiously optimistic about Discovery (or they’ve been battered into a curled-up fetal position by AT&T and are desperate for a savior), but saying the right things is ultimately just that, and the star-studded dinners at Bryan Lourd’s house won’t assuage hard feelings once Zaslav starts making actual decisions that piss people off.
And he needs to make some big ones. They started this week, with the long-rumored announcement of a de-layered management structure, which includes no official No. 2 and a whopping 13 direct reports to Zaslav (including two open jobs, running sports and diversity/inclusion). That followed the expected plank-walking of nine top WarnerMedia execs, including C.E.O. Jason Kilar, studios and networks chief Ann Sarnoff, HBO Max general manager Andy Forsell, and the others who have been synergized out. More under them will soon follow. According to a source familiar with his thinking, Zaslav is aiming for additional announcements tomorrow and next week, wanting to give the conquered employees as much clarity on New Warners as possible.
I’m betting the inevitable mass layoffs are next. Keep in mind, Warner Bros. Discovery is launching with about $58 billion in debt. That’s huge. Netflix, which some critics have dubbed Debtflix, carried a comparatively small $16 billion debt load in 2020. Netflix is a different business, but some analysts believe it will take Warner Bros. Discovery more than a decade to pay its debt off—and that’s if content costs don’t continue to rise, as expected. Zaslav has already promised more than $3 billion in immediate cost savings, though a lot of those cuts will come from overlapping units that have nothing to do with content. For instance, both these companies are spending billions on direct-to-consumer infrastructure (yet somehow my HBO Max app still freezes in the middle of John Oliver every week), and those efforts will surely be combined. The cost pressures are real, one reason why Zaslav has been signaling that he’s not going to go Netflix-style nuts on content spend.
That’s all separate from perhaps the biggest challenge here: Integrating two media behemoths—and only a couple years after AT&T downsized and integrated WarnerMedia, causing much anger and a talent exodus. Yes, the companies excel at different things—Discovery churns out cheap reality TV for a downmarket audience and maintains a huge international sports presence; Warner makes $200 million comic book movies and wins Emmys—which will render many aspects complementary. But it’s tough to smash together legacy companies with distinct cultures. Disney and Fox are still struggling with that integration.
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Out of that struggle will emerge winners and losers, of course. Some are already evident. Based on my conversations with a few smart people this week, here’s what I’m hearing:
The Winners
HBO Max: This one’s kinda obvious. AT&T is leaving Zaslav with about 74 million global subscribers, which he can attempt to combine with Discovery’s 22 million streaming subs. In his exit interviews this week (including a lively chat with me for my podcast, The Town), Jason Kilar positioned HBO Max as newly competitive with Netflix and Disney+ in the upper tier of services. That’s a bit of a stretch, but there’s no doubt that Kilar, who was hired two years ago to supercharge HBO Max, did exactly that. (At what expense, I’ll get into below.) Zaslav, who often sings the praises of the HBO content in a way he doesn’t with other divisions, is not expected to screw around with chief content officer Casey Bloys and his team. Both budgets and volume at HBO could actually increase, and how much they increase will be a big indicator of how serious Zaslav is about becoming a truly global Netflix competitor.
Kathleen Finch: The low-profile Discovery “brands officer” now finds herself running all the Warner Bros. Discovery linear networks—including TBS and TNT, which (at least for now) air some premium scripted content. (Will be interesting to see how Finch handles those things called “unions.”) She is a relatively unknown entity in Hollywood—as is Bruce Campbell, Discovery’s distribution guru, who’s also getting a bigger purview—but that will likely change. Both are described as sharp and cutthroat, in the Zaslav mold.
Toby Emmerich: So much for those dumb rumors that the Warners film chief would be replaced by Legendary’s Mary Parent or Netflix’s Scott Stuber. Emmerich is Hollywood’s Teflon Don, surviving Warners regime changes going back to when he was a music supervisor at New Line in the ‘90s. Zaslav did look at other options for the film studio, I’m told, but—shocker—there aren’t that many people who can shepherd movies people actually want to see in theaters. Still, Zaslav is said to be eyeing the film studio closely, so it’s clear Emmerich will need to prove he can deliver theatrical tentpoles more like The Batman and less like Matrix: Resurrections, while assembling a direct-to-Max slate that generates the real holy grail of movies these days: minutes streamed.
J.B. Perrette: He’s moving from London to L.A. for the top streaming job, responsible for the inevitable integration of HBO Max, Discovery+, CNN+ and whatever else the company wants to throw into its signature product. Another Zaslav inner circle guy poised for a much higher profile.
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The Losers
CNN+: You can sense the Zaslav team already rolling their eyes at the reported $300 million per year budget for the new CNN-branded streamer, especially since downloads in its first few days have been poor, I’m told. Vulture’s Joe Adalian called it “the Quibi of streaming news,” which must have caused CNN’s new leader Chris Licht and CNN+’s Andrew Morse to shudder. I’m not ready to tar it with the Scarlet Q quite yet, but CNN+ certainly hasn’t articulated why it exists or why I should pay $6 for it. No, a Jake Tapper book club isn’t quite as compelling as his news show (though I am curious to find out what Jake reads besides media coverage of himself). Kilar and others have said the service will soon live on HBO Max for an upcharge, which makes a lot more sense. It’s an evolution: An HBO salesperson used to convince subscribers to take Cinemax for a few bucks more; soon it’ll be the Max app prompting them into CNN+ and Discovery+.
AT&T: Yes, AT&T shareholders will own 71 percent of the spin-off Warner Bros. Discovery. But what about the mothership? The MoffettNathanson analyst firm just put a sad $19 target on the AT&T stock, which has languished during its WarnerMedia tenure as the rest of the market boomed. The firm said it best in a note on the spinoff this week: “Unfortunately for AT&T, the damage done by their acquisition of Time Warner, and their earlier acquisition of DirecTV, cannot be undone with the stroke of a pen. The deals left AT&T overlevered, and they left AT&T’s core business weaker for having spent several critical years with management’s attention focused elsewhere.”
Ouch. Turns out Randall Stephenson, John Stankey and the rest of the AT&T brain trust weren’t wrong about the opportunity inherent in a supercharged HBO, they just went about it in a hamfisted way, driving out talent and failing to recognize how damned expensive the whole endeavor would be. The market figured that out pretty quickly.
Jason Kilar: I don’t think we need to rehash the whole Kilar saga. A heat-seeking disruptor, he came in with one job—turn HBO Max into something—and he leveraged all the WarnerMedia assets, as well as the chaos of the pandemic, to do exactly that, perhaps with long-term benefits to Zaslav and Warner Bros. Discovery. Project Popcorn, dumping the entire 2021 movie slate on Max day-and-date, will be his legacy, for better and worse, though he proudly defends it as ultimately being additive.
We’ll never know for sure. Many agree with him; I’m still not convinced, especially when you consider the cash bonfire of production and marketing budgets for all 18 films, the $200 million-plus in payouts to talent participants, the potentially costly lawsuit filed by Village Roadshow over Matrix and other claims, the longterm damage to theatrical franchises like Wonder Woman, Suicide Squad and Matrix; the overall devaluing of the lucrative windowing system and movies as a singular experience; and the destruction of all those talent relationships. It was a lot.
Still, say what you will about Kilar, but he was always game to defend his positions to me and to others in the media. Most executives at his level are terrified of engaging publicly, and instead choose to hide behind layers of spin doctors. Kilar isn’t afraid. It makes it harder to mock him when he does something objectively mockable, like allowing the CNN staff to yell at him in person twice over his move to oust Jeff Zucker, or sending a farewell email this week offering Warner employees complementary signed photos he had taken during his tenure.
Kilar really had only a year to operate, before Stankey pulled the rug and sold the company while Kilar was in the middle of that infamous Wall Street Journal profile. So he must now feel like he’s got unfinished business in the streaming wars. On my podcast, Kilar predicted that Netflix, like HBO Max, Disney+ and the others, will soon realize it needs to offer a cheaper, ad-supported service in order to truly reach its global subscriber potential. Free idea for Reed Hastings: Why not hire Kilar to create that service?
See you Sunday, Matt
Got a question, comment, complaint, or an invite to a Dodger game? Email me at Matt@puck.news or call/text me at 310-804-3198. 
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