“Make Sure We Get Paid” – The Hollywood Reporter


In 2015, David Zaslav in contrast the industrywide rush to scripted TV to a youngsters’ soccer recreation — all gamers are clumped across the ball, whereas the remainder of the sphere is extensive open. “It’s quite crowded, it’s pretty expensive, and it’s looking more and more like the movie Business,” the then-Discovery CEO stated, explaining why his government staff wouldn’t be a part of the Peak TV fray. 

Fast ahead to 2022, and Zaslav, as CEO of Warner Bros. Discovery, is working a scripted powerhouse and betting on films as a key content material engine. But he, together with CFO Gunnar Wiedenfels, nonetheless vows to zag the place the trade zigs. “We have no intention of being beholden to anyone in particular or to a specific Business model,” Zaslav stated throughout an Aug. 4 earnings name. “Simply put: we are open for Business.” 

As Zaslav detailed, that plan consists of setting a measured purpose for streaming subscribers, returning to an emphasis on theatrical releases and even declaring an openness to licensing content material to 3rd events. This technique positions streaming as simply one in all many segments of a multifaceted Media agency, in distinction to Netflix’s all-in mannequin, whereas feeding into the corporate’s plan to seek out $3 billion in value financial savings. “The reality is, this is what Warner needs to do given its financial condition,” says analyst Rich Greenfield, who runs LightShed Partners. “What Warner does in the future, if they can de-lever, time will tell.” 

As it stands, Warner Bros. Discovery has been a merged firm for under about 4 months. In its first report as a mixed entity, the conglomerate reported second-quarter income of $9.8 billion and a lack of $3.4 billion, alongside $53 billion in gross debt. (In distinction, Netflix’s gross debt on the finish of its second quarter was $14.3 billion, although it didn’t have debt associated to a merger, alongside income of $7.97 billion.)

Working inside that monetary place, Zaslav and staff are reversing the technique of his predecessor, former WarnerMedia CEO Jason Kilar, who doubled down on streaming by releasing the studio’s total 2021 movie slate on HBO Max similtaneously the theatrical releases amid the COVID pandemic. Using Batgirl as the newest instance, Zaslav stated his staff had analyzed the outcomes of this streaming-first experiment, however had not been capable of finding a Business case and monetary rationale for the technique. 

Source: Warner Bros. Discovery filings

“We have a different view on the wisdom of releasing direct-to-streaming films and we have taken some aggressive steps to course-correct the previous strategy,” Zaslav stated. “We will fully embrace theatrical as we believe it creates interest and demand.” As movies transfer from theatrical to streaming and elsewhere, “their overall value is elevated, elevated, elevated,” he touted, mentioning such latest examples as Elvis and The Batman.

Other cuts have adopted related cost-cutting measures, together with the axing of animated characteristic Scoob!: Holiday Haunt, the shelving of Wonder Twins, one other DC movie in growth, and the scrapping of J.J. Abrams’ big-budget streaming collection Demimonde

The theatrical-first mannequin marks a return to Hollywood’s conventional method of optimizing content material distribution and maximizing income through varied platforms, whereas additionally serving as counterprogramming to any sector giants which were placing all their eggs within the streaming basket. Under Zaslav’s plan, Warner Bros. Discovery will create a subscription streaming platform combining HBO Max and Discovery+ content material, set to launch in summer season 2023, with plans to launch a free, ad-supported service in a while. 

On this platform, the corporate will proceed to spend on programming, however at a extra measured fee than opponents. Zaslav is highlighting HBO Max (and touting the upcoming launch of Game of Thrones prequel House of the Dragon) as a centerpiece of the platform, whereas additionally sustaining necessary manufacturers on the Discovery+ channel, together with a brand new cooking recreation present from Guy Fieri. WBD has outlined a much less lofty streaming subscriber Growth goal of 130 million by 2025 for its deliberate platform combining HBO Max and Discovery+ than, for instance, Disney, which has projected 230 million to 260 million Disney+ subs by 2024.

“We’re not in the Business of trying to pick up every sub. We want to make sure we get paid,” Zaslav stated. 

While this will consolation buyers who had been cautious of subscriber slowdowns amid excessive content material spending on different platforms, Greenfield views it as an organization “scaling back their ambitions,” marking a near-term win for Netflix and others who can afford to proceed to take a position.

The Warner Bros. Discovery staff can also be not treasured concerning the content material it produces, as Zaslav declared that the corporate will fortunately promote it to the very best bidder, not like rivals which have more and more stored their content material for themselves and their streaming companies. “What is critical to us, we are going to keep that exclusively,” he stated, seemingly talking to the corporate’s authentic content material in addition to its massive franchises, reminiscent of Harry Potter. But content material that “could be non­exclusive and have no impact on us, we want to monetize that to drive economic value.”

All in all, this method to streaming is “pragmatic in every way imaginable,” Moody’s analyst Neil Begley says, including that Zaslav remains to be defending the corporate’s greatest manufacturers, whereas additionally utilizing them to Help fund the brand new choices. “They need that cash flow to fund the transition of the distribution of their content” to numerous platforms.

And with Warner Bros. Discovery’s monetary place, which features a reliance on its legacy TV Business, a extra cautious push into streaming is important, MoffettNathanson analyst Robert Fishman argued in a report. Mentioning the corporate’s lowered 2023 earnings earlier than curiosity, taxes, depreciation and amortization steerage of $12 billion-plus, down from $14 billion beforehand, he stated that this “highlights WBD’s deep dependence on profits from linear cable networks that are under increasing pressure in a declining pay TV ecosystem.” All of this doubles down on Zaslav’s cash-flow-first technique, a revenue metric exhibiting the flexibility to fund operations with out exterior financing. 

The query is: Will it work?

It could also be too quickly to inform, Begley says. However, the conglomerate has an skilled administration staff and property in place that ought to Help the staff create one other aggressive top-tier streaming platform, regardless of any monetary headwinds, the analyst notes.

For now, Cowen analyst Doug Creutz argued that this technique ought to endear the corporate to these spooked by latest streaming subscriber Growth challenges for Netflix and others. “The fact that WBD management is so clearly laser-focused on managing the Business for free cash flow generation over the long term will only make shares more attractive to value-oriented investors,” Creutz wrote in an Aug. 5 report, “particularly compared to other Media names that still seem somewhat unsure about whether top-line Growth or bottom-line performance is the more important metric.”

This story appeared within the Aug. 10 concern of The Hollywood Reporter journal. Click right here to subscribe.

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