| From: Jon Koplik | 4/23/2022 6:51:12 PM | | | | | | Barrons -- Netflix’s Plunge Is a Wake-Up Call for Streaming ...........................................
THE TRADER
April 22, 2022
Netflix’s Plunge Is a Wake-Up Call for Streaming
By Nicholas Jasinski
Netflix stock’s epic post-earnings collapse this past week reverberated through the ranks of streaming stocks, dragging down shares of competitors left and right.
The streaming pioneer finished the week down 37%. Warner Bros. Discovery (ticker: WBD) tumbled 17%, Paramount Global (PARA) dropped 15%, Walt Disney (DIS) fell 9%, Lions Gate Entertainment (LGF.A) lost 8%, and AMC Networks (AMCX) shed 7%. NBCUniversal owner Comcast (CMCSA) slipped less than 5%, buoyed by cable-segment results at AT&T (T) and Verizon Communications (VZ).
Wall Street continues to wake up to the thesis presented in a recent Barron’s cover story: Streaming is a hit with consumers, and undoubtedly the future of how people will consume movies and TV series, but the business model just doesn’t work yet -- and for some companies, maybe never will.
A survey of 3,100 U.S. adults by Morgan Stanley analyst Benjamin Swinburne and his team found that the average household subscribes to 2.8 paid streaming services today, up from 2.5 a year ago and 1.8 in 2018. Consumers want to stream, and it’s not a winner-takes-all game. But there are many more contestants than places on the podium.
The streaming industry remains in a land-grab phase, with companies throwing tens of billions of dollars into original series and movies, marketing, and promotions. Following the Netflix (NFLX) model, legacy media firms will accept several years of unprofitable growth for their services, on their way to the Holy Grail of high-margin, recurring-revenue subscriptions with global scale. Big Tech giants Apple (AAPL) and Amazon.com (AMZN) view their streaming services as customer-retention add-ons to their more-profitable businesses -- not as profit makers.
The hard truth is that it’s difficult to make money in streaming when your competitors explicitly choose not to, and investors want to see profits. With interest rates on the rise and valuations of long-duration assets under pressure, Wall Street is less willing to underwrite cash-burning initiatives that might only begin to pay off several years down the road.
Some of Netflix’s issues are company-specific. The stock’s valuation on a variety of metrics towered above streaming rivals, giving shares more room to fall. Netflix already has 222 million subscribers and a multi-year head start. And management may have waited too late to begin working on an advertising-supported tier of the service. But competition will be felt at Disney+, HBO Max, Peacock, and Paramount+, too.
So what should investors do? They have options: Focus on the surest streaming winners (Disney, WBD, and Netflix), the companies with other revenue and profit levers to pull (Disney and Comcast), or the cheapest stock valuations (Paramount and WBD). Or perhaps avoid streaming stocks altogether until the dust settles and the path to sustainable profits emerges -- if that ever happens.
Write to Nicholas Jasinski at nicholas.jasinski@barrons.com
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| From: Jon Koplik | 4/25/2022 2:18:54 AM | | | | | | Barrons piece : explains your basis with the Warner Bros. Discovery spinoff ...........................................
April 21, 2022
AT&T Shareholders Who Sell Warner Bros. Stock Face Tax Complexities
By Andrew Bary
Since the AT&T spinoff of its 71% stake in Warner Bros. Discovery to its shareholders on April 8, many AT&T investors have considered selling their Warner Bros. stock to buy more AT&T to get higher income.
Calculating the cost basis of AT&T (ticker: T) and Warner Bros. Discovery (WBD) is a little tricky, and the right approach could be somewhat different than what Barron’s originally suggested immediately after the spinoff.
The good news for any AT&T holders selling their Warner Bros. stock is that their cost basis is calculated based on when they bought AT&T shares, not the date of the spinoff.
This means that any gains or losses will get favorable long-term capital-gains treatment if the investor held the AT&T stock for at least a year. Given that AT&T stock has done poorly over the past decade, many holders selling AT&T or Warner Bros. stock will experience a loss for tax purposes.
On Thursday, AT&T shares were up 3.4%%, to $20.01, in the wake of the company’s first-quarter earnings report late Wednesday. The shares have risen 10% since April 8, and now yield 5.7%.
Warner Bros. Discovery stock, which was up 0.4%, to $23.10, on Thursday, has no dividend and the company has no current plans to pay one as it focuses on debt reduction. Warner Bros. stock is off 5.4% since the spinoff amid concerns about the ultimate size and profitability of the streaming market after Netflix’s (NFLX) disappointing results earlier this week.
Many AT&T holders are income oriented given the stock’s high yield and have sold their Warner Bros. stock to buy more AT&T shares or are thinking about doing so.
In the wake of the spinoff, Raymond James analyst Frank Louthan wrote that the “uptick following the spin could be driven by investors buying more shares of T to replace some lost dividend income.”
In our article after the spinoff, Barron’s wrote that the tax basis should be calculated based on the closing price of the AT&T and Discovery on Friday April 8, the date of the distribution of the Warner Bros. Discovery stock to AT&T holders.
While Internal Revenue Service guidelines aren’t specific on the date to be used for calculating the basis, the more relevant date could be Monday, April 11, the first day of trading following the spinoff.
Here’s what New York tax expert Robert Willens told us:
“Usually, for tax purposes, the date of distribution is the controlling date. Frequently, that will coincide with the first day of trading as independent companies. If, however, there is a time lag then, yes, you would use the latter date, the date as of which the stocks trade independently of one another. The I.R.S. regulations are not crystal clear on this point. They say that the basis should be allocated “in proportion to the fair market value …” The regulations, however, do not specify the date on which those fair market values are to be determined.”
Willens says that to calculate the tax basis, an investor would need to use the average of the high and low prices of AT&T and Warner Bros. Discovery on April 11.
That was $19.31 for AT&T and $24.88 for Warner Bros. Discovery based on trade data shown by Fidelity Investments.
To calculate the basis, an investor first would multiply the spinoff ratio of roughly a 0.242 share of Warner Bros. Discovery for every AT&T share times $24.88 (the average WBD price on April 11) to get about $6 of Warner Bros. stock per AT&T share.
That figure would be divided into the sum of the AT&T average price and the WBD spinoff value ($6 divided by $25.31) to arrive at the percentage of the original AT&T cost that should be attributed to Warner Bros.
That figure is about 24%, meaning that 24% of an investor’s cost would be attributable to Warner Bros. and 76% to AT&T.
So if an investor had originally paid $30 for AT&T, roughly $7.13 (24% of $30) would be attributed to Warner Bros. and $22.87 to AT&T (76% of $30). Barron’s had calculated the percentages as roughly 25% and 75% in our April 11 article.
It gets even more complicated if any an investor bought AT&T in several transactions
“If you own several blocks of T stock, you have to make this computation on a block-by-block basis,” Willens told Barron’s in an email. “You can’t simply aggregate the blocks of stock you own. Instead, each block of T stock is considered separate from any other blocks you might own.”
As we wrote on April 11, investors who bought equal amounts of AT&T at $30 and $24 can’t use an average price of $27 in calculating their cost basis. They can pick which block of stock they want to use when they sell any AT&T or Warner Bros. Discovery stock.
“Sure, you can choose which block of stock to sell,” Willens wrote. “You just have to specify to your broker which block of stock you wish to sell, and the broker is then required to confirm the choice you made in a written document given to the client within a reasonable time after such specification is made. Such specification can be confirmed by the broker on the client’s monthly statement, for example. That is called ‘specific identification’ and it is respected for tax purposes even though stock from a different block is actually transferred to the purchase.”
Investors probably should consult their own tax advisors on the matter given the complexity.
Write to Andrew Bary at andrew.bary@barrons.com
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| From: Glenn Petersen | 4/27/2022 5:20:55 AM | | | | | | Warner Bros. Discovery Cuts Scripted Programming Development at TBS, TNT (EXCLUSIVE)
By Jennifer Maas, Joe Otterson
Variety
April 26, 2022
TNT and TBS are pausing their scripted game under new parent company Warner Bros. Discovery, which CEO David Zaslav has promised will find $3 billion in cost savings across the new company in the post-merger era, Variety has learned exclusively.
The WarnerMedia-run cable channels is no longer developing new scripted content, three sources close to the matter tell Variety. According to one insider, Warner Bros. Discovery leadership is currently evaluating the strategy for all of the so-called “TNets” — including truTV, which are run by Brett Weitz — and will have a better idea of the role each will play within the new regime moving forward.
It is unclear what will happen to TBS and TNT’s current slate of scripted programming, but for the moment, it is apparently status quo for returning series like “Snowpiercer.”
Warner Bros. Discovery did not immediately respond to request for comment Tuesday.
After ramping up their scripted programming efforts in the past decade, both TNT and TBS have significantly pared down their scripted offerings in the last few years.
At TBS, the network’s only remaining scripted shows are the comedies “The Last OG,” “Miracle Workers,” “Chad,” and “American Dad.” Of those, “The Last OG” aired its fourth season in October 2021 with no word on a fifth. “Miracle Workers” aired its third season in July 2021 with a fourth season ordered in November. “Chad” aired its first season in the summer of 2021 with a second season to debut in 2022. “American Dad,” which moved to TBS from Fox in 2014, was renewed for two more seasons in December 2021.
TNT has only two scripted shows left on its roster. Those are “Animal Kingdom,” which will end after its sixth season airing in June, and “Snowpiercer.” The latter show was renewed for a fourth season ahead of its third season premiere.
Warner Bros. Discovery reported its first-quarter earnings earlier Tuesday, which focused primarily on the Q1 results of Discovery, as the combined company did not exist until earlier this month, when the $43 billion deal was closed for Discovery to purchase WarnerMedia from AT&T. Instead, AT&T last week included WarnerMedia results in its quarterly report for the last time.
On the investor call to discovery Discovery Q1 Tuesday, CFO Gunnar Wiedenfels said WarnerMedia assets profit projection for 2022 is $500 million lower than Discovery expected, and Discovery’s better-than-expected results help offset that for WBD.
“2022 will undoubtedly be a messy year,” he said, and Warner Bros. Discovery is looking to “rectify some of the drivers behind the business-case deviations” across the company. Wiedenfels called Warner Bros. Discovery’s very recent decision to shut down the newly launched CNN+ “exhibit A” of that strategy. It’s clear now that TNT and TBS’ scripted is part of that too.
Warner Bros. Discovery Cuts Scripted Programming at TBS, TNT - Variety |
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| From: Glenn Petersen | 5/19/2022 6:41:12 AM | | | | | | There’s a New Media Mogul Tearing Up Hollywood: ‘Zas Is Not Particularly Patient’
CEO David Zaslav has quickly put his stamp on Warner Bros. Discovery, weighing in on content, forcing out executives and cutting costly projects
By Joe Flint
Wall Street Journal
May 18, 2022 9:57 am ET
David Zaslav at Allen & Co.’s Sun Valley conference last year. KEVIN DIETSCH/GETTY IMAGES
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Days into his role as CEO of Warner Bros. Discovery, WBD -4.90%? David Zaslav gathered movie-studio executives and grilled them about a recent string of box-office flops, including “Cry Macho,” a Clint Eastwood neo-Western.
Warner Bros. executives conceded they had doubted the movie would turn a profit, people familiar with the meeting said. Why, Mr. Zaslav asked, was “Cry Macho” made if they had reservations? When they replied that Mr. Eastwood had given the studio many hits and never delivered a movie late or over budget, he answered: We don’t owe anyone any favors.
“It’s not show friends, it’s show business,” he told them, quoting from the 1996 Tom Cruise movie “Jerry Maguire.”
Mr. Zaslav, who last month took over the company resulting from Discovery’s merger with AT&T Inc.’s WarnerMedia, has given every indication he wants to be a talent-friendly mogul, schmoozing with industry personalities at the Beverly Hills Hotel.
But the 62-year-old cable-industry veteran, a protégé of the late Jack Welch, longtime CEO of General Electric Co., has shown he isn’t afraid to ruffle the industry’s elite.
He and his team have been scouring the company’s books, making it clear spending needs to be reined in. They have abandoned projects they consider costly and unnecessary. That included pulling the plug on CNN+, barely a month after previous management launched the streaming service, and canceling a DC Comics superhero movie in development.
Clint Eastwood, left, and Eduardo Minett in ‘Cry Macho.’ PHOTO: CLAIRE FOLGER/ASSOCIATED PRESS
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He has given an unwelcome jolt to executives in the WarnerMedia empire who were happy when AT&T decided to part with it in the merger, hoping there would be less financial scrutiny—not more. “It’s the first time they’ve had a leader there who is challenging them and asking the right questions,” said Ari Emanuel, CEO of Endeavor, which owns talent agency WME. “When there are things he wants, he goes after them in a very aggressive manner,” he said of Mr. Zaslav.
Mr. Zaslav, who starts working at 6 a.m. and holds meetings as early as 7 a.m., is looking to be more hands-on than his predecessors. Creative executives now report directly to him, a change that led to the ouster of many executives who once held these intermediary roles.
“Command and control” is a favorite phrase for Mr. Zaslav—Zas to friends and colleagues. “Zas is not particularly patient,” said Margaret Loesch, now retired, who ran Discovery Kids for him. “He is going to want to change things quickly.” His axing CNN+ was “pure Zas,” she said.
Mr. Zaslav has few options other than drastic moves. The deal brought the new company—now home of Warner Bros. and cable channels including HBO, CNN, TNT, Food Network and HGTV—$55 billion in debt, and he has promised to cut at least $3 billion in costs. He has given executives a few weeks to provide restructuring and business plans.
“We are not trying to win the direct-to-consumer spending war,” Mr. Zaslav said on an April earnings call. On the call, Chief Financial Officer Gunnar Wiedenfels called out the nearly $30 billion the company spends making and marketing content, saying: “We intend to drive the highest level of financial discipline here.”
The entertainment industry faces challenges as it pivots toward streaming, and rival Netflix Inc. has had recent stumbles. HBO Max, Warner Bros. Discovery’s primary streaming service that combines original HBO programming and library content from across the Warner Bros. properties, has shown strong growth, with 77 million subscribers around the globe, up 13 million from a year ago. The company has said it plans to combine HBO Max with another prominent streaming service, Discovery+.
Mr. Zaslav with mentor Jack Welch, right, in 2017. PHOTO: WARNER BROS. DISCOVERY
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Mr. Zaslav’s team is undoing some of the previous regime’s programming strategy, specifically plans to make original movies for HBO Max, people familiar with the matter said. The team scratched “The Wonder Twins,” a live-action film based on the Warner Bros.-owned DC Comics superhero duo, because Mr. Zaslav deemed its estimated $75 million-plus budget too high and its return too limited for a made-for-streaming movie, the people said.
Instead, Mr. Zaslav wants Warner Bros. to focus on increasing its number of theatrical releases to between 20 and 25 a year, a person familiar with his thinking said. Theatrical movies also tend to perform better on HBO Max than movies made exclusively for the service. Last year, Warner Bros. released 17 movies.
Current and former Warner Bros. executives said drawing people back into theaters remains difficult for movies that aren’t crowd-pleasers like “Batman” and “Spider-Man.”
At the same time, Mr. Zaslav is looking to make fresh “ Harry Potter”-related content for HBO Max—Warner Bros. made all the wizarding franchise’s movies—people familiar with his thinking said, and plans to meet with creator J.K. Rowling in the coming weeks to discuss the matter.
Mr. Zaslav also wants to re-examine children’s programming, another big investment area at Warner Bros, some of the people said. The new leaders aren’t sure children’s content is a good fit on HBO Max, where the ratings haven’t been strong, people familiar with their thinking said. Mr. Zaslav doesn’t want to abandon the business—Warner owns significant cartoon libraries, from Looney Tunes to Hanna-Barbera—but isn’t sold on the current strategy, they said.
Last week, the company pushed out Tom Ascheim, who oversaw children’s programming.
Executive exits
Just before Mr. Zaslav took over, WarnerMedia CEO Jason Kilar and Ann Sarnoff, the company’s head of studios and networks, departed. Also forced out was Brett Weitz, general manager of the TNT, TBS and TruTV cable channels. The company is expected to eliminate expensive scripted programming such as “Snowpiercer” from these channels in favor of cheaper reality shows—or “unscripted” fare—and more sports, people familiar with the company’s deliberations said.
This month, in another cost-saving move, Warner Bros. Discovery decided not to renew TNT and TBS’s deal to telecast the Screen Actors Guild Awards, a show it has carried for more than two decades.
Mr. Zaslav’s axing of CNN+ shocked CNN executives, who had spent $300 million launching it. The move signaled everything was under scrutiny.
“We will clearly take swift and decisive actions on certain items, as you saw on CNN+,” Mr. Zaslav said on the earnings call. Mr. Wiedenfels on the call said the company would take a similar approach with other “chunky investments” that are “lacking a solid financial foundation.”
When longtime Warner Bros. General Counsel John Rogovin left after a realignment diminished his role, it upset much of the Warner Bros. and HBO leadership, who saw him as critical to their teams, people familiar with the matter said.
Meanwhile, Mr. Zaslav has met with high-profile executives including former MGM movie chiefs Mike DeLuca and Pamela Abdy for potential roles at the Warner Bros. studio, people familiar with the matter said.
Mr. Zaslav’s axing of CNN+ shocked CNN executives, who had spent $300 million launching it. PHOTO: SPENCER PLATT/GETTY IMAGES
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Some longtime Warner Bros. executives expressed frustration that Mr. Zaslav wasn’t considering their views in strategy discussions and was flirting with potential replacements. His mentality, they said, can be summed up as: Can’t you crank out just hits?
Mr. Zaslav wants to use more statistics and research to determine what shows and movies the company should make, he said in a memo to employees on Monday. “As we build this new company,” he wrote, “we need to be guided by data and insights to understand what’s working and what’s not.”
Mr. Zaslav has tried to reassure the WarnerMedia rank-and-file that he appreciates their legacy. He recently met with CNN founder Ted Turner, posting a photo of the meeting on social media. At his first town-hall event on the Warner Bros. lot last month, he invited Cass Warner, granddaughter of Warner Bros. co-founder Harry Warner. He had the desk of Jack Warner, another co-founder, brought out of storage and into his office on the studio lot.
He has talked with past Warner Bros. leaders, including former TV chief Peter Roth and movie head Alan Horn, who is considering a potential consulting role, people familiar with the matter said. Mr. Horn said: “any such overture deserves respectful consideration, but no decision has been made.”
Financial discipline
Mr. Zaslav’s focus on financial discipline has been a career-long endeavor. After starting out as a lawyer, he joined NBC in 1989—then a GE unit—overseeing among other things distribution for its cable business. He counts Mr. Welch, GE’s CEO at the time, as a mentor.
Discovery hired Mr. Zaslav as CEO in 2006 when it was best known for educational programming. He immediately cut half the executive team, laid off 20% of the workforce and closed unprofitable operations such as Discovery’s ret?ail business. He moved Discovery toward unscripted programming, boosting ratings and profits but tarnishing the channel’s brands, some purists say. It became known for popular reality shows like “Here Comes Honey Boo Boo” and “19 Kids and Counting.” ?
?He expanded Discovery through acquisitions, spending nearly $12 billion to buy Scripps Networks and its cable channels including HGTV and Food Network in 2018. Worried that Discovery was still too small for the streaming era, he pounced when AT&T CEO John Stankey told him he was thinking of selling WarnerMedia.
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Mr. Zaslav, then CEO of Discovery, during the Discovery Upfront in 2018. PHOTO: MIKE COPPOLA/GETTY IMAGES?
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?Mr. Zaslav was establishing a Los Angeles base before the AT&T deal, buying the Beverly Hills home once owned by the late Paramount chief Robert Evans for $16 million in 2020. He is spending millions more on renovations and still hasn’t moved in.?
?He is known for his casual manner, favoring Diet Coke and fleece vests. He still hangs out with high-school buddies. His compensation is among the highest among CEOs, with a 2021 pay package valued at $246.6 million—much of it based on stock performance. He has several homes, and his end-of-summer star-filled soirees in East Hampton, N.Y., have become legendary. ?
?Under Mr. Zaslav, Discovery gained a reputation for bending reality-show producers to its will. While networks traditionally pay in advance for episodes, in 2019 Discovery told producers to cover production costs themselves and that it would reimburse them. ?
?The move, aimed at getting programming costs off Discovery’s books, was met with pushback from bigger producers with clout to say no. But most others are now making shows for Discovery under the new system. Such a hardball approach likely wouldn’t succeed in the highly competitive and expensive world of movies and scripted television. ?
?“There is a lot of bloat in budgets, but I don’t know if it is bloat you can cut out,” said John Ford, a former president of Discovery Channel and now a consultant. “Hollywood runs on that bloat.” ?
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Austin? Butler as Elvis Presley in the Warner Bros. Pictures drama ‘Elvis.’ PHOTO: WARNER BROS. PICTURES
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Discovery is also known for using its networks to cross-promote programming—a contrast with Warner Bros. and HBO, which are known to splurge on marketing and talent relations. HBO sees its lavish parties as a cost of business; one “Game of Thrones” season premiere party topped $1 million, said people familiar with the event.
In a recent town-hall meeting, Kathleen Finch, whom Mr. Zaslav tapped to oversee the bulk of the cable networks, said the company was looking to approach Warner Bros. movie stars to see if they wanted to take part in a Discovery Channel Shark Week promotional event that involves swimming with sharks. She also said the Food Network could do shows about Elvis Presley’s favorite foods, which would help promote the much-anticipated summer release of “Elvis,” a Warner Bros. movie about the relationship between the singer and his manager, played by Tom Hanks.
‘Master communicator’
Mr. Zaslav cultivates close ties with top entertainment figures including Oprah Winfrey, whose cable network he bankrolled and in which Discovery owns a majority stake. He is close with director Steven Spielberg.
Mr. Zaslav has close ties with Oprah Winfrey, here on the Warner Bros. lot in April. PHOTO: WARNER BROS. DISCOVERY
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“He’s a master communicator when it comes to talent,” said Thom Beers, the producer of the long-running Discovery hit “Deadliest Catch.”
For nearly a year leading up to the Discovery and AT&T deal’s close, Mr. Zaslav held court at a Beverly Hills Hotel bungalow, meeting agents such as CAA’s Bryan Lourd and Endeavor’s Mr. Emanuel, according to people familiar with the meetings. He also talked with key Warner Bros. talent such as TV producer Greg Berlanti.
While those close to Mr. Zaslav described the past year as a listening tour to gain a better understanding of the business, Warner Bros. executives said the sessions were mostly an opportunity for agents and others to advance their own agendas.
Mr. Zaslav’s workaholic habits are already leading to changes on the lot. He arranged for the commissary and the Starbucks on the Warner Bros. lot to open earlier in the morning, people familiar with the matter said. His ultimate goal is for the Starbucks to operate 24 hours a day.
Write to Joe Flint at joe.flint@wsj.com
Corrections & Amplifications
Warner Bros. Discovery CEO David Zaslav’s end-of-summer soirees are in East Hampton, N.Y. An earlier version of this article incorrectly said the events were in Southampton, N.Y. (Corrected on May 18.)
Appeared in the May 19, 2022, print edition as 'Warner Bros. Discovery Chief Puts His Stamp on Hollywood'.
There’s a New Media Mogul Tearing Up Hollywood: ‘Zas Is Not Particularly Patient’ - WSJ |
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| To: Glenn Petersen who wrote (4) | 8/7/2022 7:12:48 AM | | From: Glenn Petersen | | | | Warner Gets Really Real With Streaming Plan
Canceled movies and a modest long-term subscriber target show new HBO Max owner is serious about playing smart
By Dan Gallagher
Heard on the Street
Wall Street Journal
Updated Aug. 5, 2022 4:13 pm ET
Leave it to a media giant to find a colorful way to advertise its new approach.
An eventful second-quarter report from Warner Bros. Discovery late Thursday was preceded by news the day before that the company pulled the plug on “Batgirl,” a $90 million production that was already in the can to the point of going through test screenings. Those screenings reportedly indicated that the movie would be a flop in theaters, and Warner’s WBD -16.53%? new top brass thus decided that a tax write-off would be more valuable than putting it on its HBO Max streaming service.
The company previously known for its vast slate of reality shows got even more real on Thursday. Chief Financial Officer Gunnar Wiedenfels said a “deep dive” into WarnerMedia’s financials following the closing of its merger with Discovery Inc. in early April is forcing the new combined company to cut $1 billion from its target for adjusted earnings before interest, taxes, depreciation and amortization for this year and $2 billion from its 2023 target. Warner also revised down the combined subscriber count for its HBO Max and Discovery+ services by about 10 million, citing factors like unactivated accounts from AT&T’s T 0.44%? wireless business.
The company’s revenue for the second quarter—its first as a combined operation—was also 17% short of Wall Street’s projections. Warner’s stock nearly 17% Friday. But near-term financials were almost a side note; the company used the vast bulk of its 94-minute conference call Thursday to further outline a business philosophy that diverges from the “streaming first” approach of many of its media peers. Chief Executive David Zaslav said Warner “cannot find an economic case” for releasing an expensive movie direct to streaming. He added that the company will “fully embrace theatrical” while preserving “optionality” on distribution and release windows.
The timing is good. Investors have started taking a harsh look at the economics of streaming following a major stumble by Netflix, which is now losing subscribers after crossing the 220 million mark. And theatrical exhibition is coming back into vogue; Paramount Global PARA -4.15%? reported second-quarter results earlier Thursday that were greatly helped by its blockbuster “Top Gun: Maverick,” which is now 70 days in theaters at a time when most movies are pulled to streaming after 45 days.
Still, Warner is hardly turning its back on streaming. The company said Thursday that it is considering adding a free, ad-supported tier to the premium and advertising-lite options it currently offers. But that isn’t expected until after the company combines its HBO Max and Discovery+ services into one offering, which it plans to start rolling out next summer. Viewers shouldn’t be expecting a bargain. HBO Max already offers one of the streaming industry’s more expensive plans at $14.99 a month for ad-free viewing, but Mr. Zaslav said Thursday that streaming plans are generally underpriced as a result of capital markets prioritizing subscriber growth. He predicted that “there will be a lot of people that are willing to pay a lot more for the quality that we have.”
On balance, Warner’s report Thursday was the clearest signal yet that the company will be managed for cash flow first, instead of chasing streaming subscribers. The company backed that view up further by setting a realistic target of 130 million subscribers for its combined services by 2025—up about 38 million from its current number. Note that Disney DIS -1.38%? still expects to add about 100 million subscribers just to its Disney+ service by the end of its 2024 fiscal year, which would likely require a lot more Marvel and Star Wars fans out there who have somehow not signed on yet. Warner’s harsh reality show may eventually prove the bigger hit.
Write to Dan Gallagher at dan.gallagher@wsj.com
Appeared in the August 6, 2022, print edition as 'Warner’s Reality Check for Streaming'. |
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| From: Glenn Petersen | 11/20/2022 5:38:19 AM | | | | | | A bit of history:
Was This $100 Billion Deal the Worst Merger Ever?
New York Times
November 19, 2022
Soon after a sweeping courtroom victory in 2018 cleared the way for AT&T’s $100 billion takeover of Time Warner, John Stankey, AT&T’s chief operating officer and the newly anointed chief executive of Warner Media, summoned his top Warner Media executives to a meeting at the Time Warner Center off Columbus Circle.
They included Kevin Tsujihara, the head of the Warner Bros. movie studio; Richard Plepler, the head of HBO; and Jeff Zucker, CNN’s chief executive. Mr. Stankey handed them a typed document titled “Operating Cadence and Style,” and sat there while they read it. The memo was two pages, single-spaced, and the silence stretched for what seemed an excruciating length.
The document, which was reviewed by The New York Times, told them how to approach and interact with their new boss. Accustomed as they were to emailing, texting or calling Time Warner’s previous chief executive, Jeff Bewkes, pretty much any time of the day or night, such a directive had never proved necessary. Now their dismay mounted.
Among Mr. Stankey’s dictates: 30 minutes was the “default” length for meetings, Saturdays were reserved for “quality time” with his family, and he expected to be home for dinner by 6:30 or 7. “My routine is important to me,” Mr. Stankey wrote.
Although “I really, really don’t like formal presentations and PowerPoint, I do like brief bullet outlines and references to working documents,” he elaborated. “I prefer to reserve more formal slide decks for moments of seminal importance. I will invest to get messages right and articulated when it counts and has the opportunity to move an issue of significance.”
Few details were overlooked: “Digital documents are preferred,” Mr. Stankey wrote, “with PDF format the minimum standard.”
Curiously, given their presence in a 12th-floor conference room, he added: “I’m not a big fan of meetings. A good meeting is purposeful, has a small number of responsible participants and closes with decisions being made.”
When everyone finished reading, Mr. Stankey asked if he had made himself clear. No one said anything. But afterward, there was a flurry of profanity-laced texts.
Less than four years later, all three Warner executives had been replaced.
And then Mr. Stankey bailed.
How badly could it go?
When AT&T’s bold megadeal to buy Time Warner was announced in October 2016, combining AT&T’s broadband and wireless networks with Time Warner content, many analysts and investors cheered. They loved the promise of cutting out the cable middleman and delivering entertainment directly to people’s TVs, laptops and phones.
With Hillary Clinton seemingly poised to be the next president, the regulatory landscape looked favorable. While the AT&T executives acknowledged that they knew next to nothing about Hollywood, they had proven entertainment executives running Time Warner’s divisions. They thought they could bring AT&T’s vast storehouse of consumer data — even artificial intelligence — to the notoriously uncertain task of greenlighting movies and TV shows.
AT&T and its chief executive, Randall Stephenson, were widely admired as masters of consolidation. AT&T itself was the product of many successful takeovers, starting with the regional Bell telephone companies.
As Gary Ginsberg, Time Warner’s head of communications, recently recalled: “This was AT&T! How badly could they screw it up?”
Less than four years after the merger, AT&T abandoned its grand initiative. It spun off its Warner Media assets and ceded management control to Discovery. The new company, Warner Bros. Discovery, took on $43 billion of AT&T’s debt, and AT&T shareholders kept 71 percent of the company, a stake worth less than $20 billion. That amounts to a loss of about $47 billion for AT&T shareholders, based on AT&T’s $109 billion valuation of the deal at the time it was announced.
An AT&T spokesman, Fletcher Cook, took issue with that calculation. He said that the value of the deal at closing was $100.3 billion, and that The Times’s analysis failed to account for the sale of Warner assets and cash flows generated while AT&T owned Warner Media. “Under any informed measure, our ownership of Warner Media was accretive,” he said.
AT&T’s acquisition of Time Warner is hardly the first deal to have gone disastrously awry — Time Warner’s own merger with AOL in 2000 led to $160 billion in write-offs. But few corporate mergers have stirred up the passions, seething resentments and finger-pointing as AT&T’s short-lived ownership of Time Warner did.
In the eyes of former Time Warner executives, a vibrant culture of creative energy and success nurtured over decades was destroyed in months. The recent cancellations of the ambitious news streaming platform CNN+, the nearly finished $90 million film “Batgirl” and the critically acclaimed HBO series “Westworld” have left Hollywood reeling — and suggest how far Warner management under AT&T had run off the rails.
Mr. Cook said Mr. Stankey, now the chief executive of AT&T, and others at the company had no interest in revisiting this subject and declined to be interviewed. But I was able to interview more than two dozen people involved in the merger and its aftermath, some on many occasions and over many hours, including both former chief executives, Mr. Bewkes of Time Warner and Mr. Stephenson of AT&T.
While many spoke on background, quite a few agreed to be quoted, offering a rare look inside the aftermath of a once-celebrated merger. I discovered that passions still run strong on both sides of the AT&T/Time Warner — and now Discovery — divide.
In a statement to The Times, AT&T acknowledged the ill will it had left behind. “A fundamental and dramatic repositioning of an entrenched corporate culture — multiple corporate cultures actually — will certainly leave broken glass, disenfranchised individuals and disagreements on the difficult path to reinvention,” Mr. Cook said.
AT&T’s path to reinvention is continuing. Months before it sold Warner Media to Discovery, it spun off the satellite broadcaster DirecTV, another prong in AT&T’s media strategy, with a loss to shareholders of about $49 billion.
By The Times’s calculation, between the Time Warner and DirecTV deals AT&T has squandered close to $100 billion.
Now it may be Discovery’s turn. After several quarters of weak financial results, Warner Bros. Discovery’s market capitalization was less than $27 billion this past week — a stunning loss of nearly $23 billion since the new company began trading in April.
Discovery in part blamed AT&T’s mismanagement for the grim results and, in the latest twist, investigated allegations that AT&T engaged in questionable accounting tactics to inflate the projections on which the value of the Warner assets was based.
Mr. Cook, the AT&T spokesman, strenuously denied any wrongdoing. But after Warner Bros. Discovery’s chief executive, David Zaslav, pressed the issue this summer with his counterpart, Mr. Stankey, AT&T agreed to pay Warner Bros. Discovery $1.2 billion by the end of August. AT&T also agreed to resume providing the HBO Max streaming service to its wireless customers, a “soft” deal that could be worth hundreds of millions of dollars to Warner.
On June 14, 2018, when the AT&T-Time Warner deal closed, AT&T stock was at $24.56. This past week it was just under $19, a decline of 23 percent, even as the S&P 500 gained more than 40 percent over the same period.
How could so much shareholder value have evaporated in so short a time?
‘Are you sitting down?’
Allen & Company’s Sun Valley media conference, the annual “billionaires’ summer camp,” has a long history of spawning media deals, from Disney’s acquisition of ABC to Jeff Bezos’ purchase of The Washington Post. And during the summer of 2015, Mr. Bewkes approached Mr. Stephenson there about a possible AT&T bid for Time Warner.
Mr. Stephenson had made his reputation in large part on his deal-making acumen. Unlike other newcomers to Hollywood, he had no interest in red carpet events and never attended any, preferring to spend time at his Wyoming ranch. An Oklahoma native who had worked for AT&T and its predecessors since 1982, he’d been AT&T’s chief executive since 2007.
Since then, AT&T’s stock price had gone nowhere, barely recovering from the Great Recession as fierce competition in wireless squeezed profit margins. Mr. Stephenson and Mr. Stankey saw media as a much-needed path to growth.
Time Warner’s Mr. Bewkes had heard all of this and had his doubts about AT&T’s ambitions, but that was not his concern. A Yale graduate with a Stanford M.B.A., Mr. Bewkes had risen through the ranks of HBO, where as president of the cable network he helped bring the world “The Sopranos.” He became chief executive of Time Warner in 2008 as the financial crisis was brewing, and over the next 10 years Time Warner stock skyrocketed.
But Mr. Bewkes saw enormous threats on the horizon. Cord-cutting undermined the lucrative cable model and with it the Turner Broadcasting cable channels, including CNN and the Cartoon Network, which accounted for more than half of Time Warner’s revenue and earnings. The rise of Netflix and Amazon Prime Video, and the accompanying multibillion-dollar spending race on content delivered via the internet directly to consumers, were a threat to HBO and the Warner studio. HBO had already lost bidding wars for the hit series “House of Cards” and “The Crown” to Netflix.
A sale of Time Warner, valuing it at over $100 a share, would be a windfall for Mr. Bewkes and his shareholders. Still, he wanted Time Warner’s properties and employees, many of them his friends, to wind up in good hands.
Rupert Murdoch’s 21st Century Fox had approached Mr. Bewkes and Time Warner with an $80 billion offer in 2014, which Time Warner rejected as too low. But Mr. Bewkes could see the writing on the wall.
When the two executives spoke in 2015, Mr. Stephenson recalled recently, he told Mr. Bewkes that he was too wrapped up in closing a deal to acquire DirecTV but that Mr. Bewkes should come back later — AT&T might be interested.
A year later, in the summer of 2016, Mr. Ginsberg, Time Warner’s head of communications, had breakfast with Peter Chernin, his former boss at News Corp. and a trusted adviser to Mr. Stephenson, at a cafe in Menemsha on Martha’s Vineyard. Mr. Chernin asked Mr. Ginsberg what he thought Time Warner’s price might be. “We’d need $105 to $115 a share,” Mr. Ginsberg suggested, pretty much off the top of his head. Mr. Chernin didn’t blanch.
As soon as breakfast was over, Mr. Ginsberg called Mr. Bewkes. “Are you sitting down?” he asked. “Because I’ve got some incredible news that will stun you.”
‘They don’t own the company yet’
The two companies announced their deal on Oct. 22, 2016. Neither AT&T nor Time Warner management was worried about antitrust or other regulatory issues since vertical combinations — mergers of buyers and suppliers, rather than competitors — were almost never challenged on antitrust grounds. No such case had been litigated in 40 years.
They had failed to reckon with the populist skepticism about big mergers or Donald J. Trump’s hostility to established media, especially CNN, which he repeatedly denounced as “fake news.” Mr. Trump’s ire was especially intense toward CNN’s chief executive, Jeff Zucker, ignoring (or forgetting) that it was Mr. Zucker, as head of NBC Entertainment, who put “The Apprentice” into NBC’s prime-time lineup and made Mr. Trump a TV star.
The proposed megadeal was one of the few issues — perhaps the only issue — to instantly unite the political right and left, with Mr. Trump, the Republican nominee for president, and the liberal senators Bernie Sanders and Elizabeth Warren unlikely allies in opposing it.
With the unexpected election of Mr. Trump in November, AT&T realized it had a problem. In January 2017, the company hired the president-elect’s personal lawyer, Michael Cohen, paying him $50,000 a month to advise it on, among other topics, the Time Warner merger, even though Mr. Cohen had no known antitrust expertise.
The move appeared to yield immediate results. (Mr. Cohen did not respond to a request for comment.)
Just days after Mr. Cohen was hired, Mr. Stephenson invited Mr. Bewkes to join him for a Trump Tower meeting with Mr. Trump, along with Mr. Trump’s son-in-law, Jared Kushner, and adviser Stephen K. Bannon. Mr. Bewkes declined.
“I wasn’t going to talk about our coverage or oversight of any of our companies, and sure as hell not with a politician,” Mr. Bewkes recalled. “We covered these people.”
Mr. Stephenson visited Trump Tower on Jan. 12. Mr. Stephenson recalled that Mr. Trump had brought up the subject of CNN and attacked Mr. Zucker before stopping himself with the realization that he shouldn’t be talking about CNN. Mr. Stephenson said he had offered no response.
Mr. Trump kept up his Twitter diatribe against CNN and Mr. Zucker. But on June 22, Mr. Stephenson visited the White House along with other chief executives, and Mr. Trump was surprisingly effusive in his praise for the AT&T chairman, saying publicly that he had done “ really a top job.”
Mr. Stephenson’s warm presidential reception was shortly followed by a visit to Time Warner by Larry Solomon, the head of corporate communications for AT&T. Mr. Solomon told Mr. Ginsberg that he was there to give him a “heads up” that “we’re going to fire Jeff Zucker,” Mr. Ginsberg recalled.
“Why?” Mr. Ginsberg asked. CNN was thriving, generating more than $1 billion in annual profit for Time Warner.
Mr. Solomon responded that MSNBC had overtaken CNN in the ratings.
Mr. Ginsberg didn’t buy that. “What does that matter?” he asked. CNN had never been driven primarily by ratings.
As soon as Mr. Solomon left, Mr. Ginsberg got Mr. Bewkes on the phone, Mr. Ginsberg recalled. “You’re not going to believe this,” he said. “They want to fire Zucker.”
“Stop right there,” Mr. Bewkes responded. “They don’t own the company yet, and they may never own the company.”
Mr. Solomon, now retired from AT&T, denied having any such exchange with Mr. Ginsberg and called the account a fabrication. Mr. Stephenson also said he had never suggested that Mr. Zucker be fired and rebutted the idea that AT&T had made any promises to Mr. Trump.
“Anyone who says otherwise is categorically wrong or making it up,” Mr. Stephenson said.
On June 27, just five days after Mr. Stephenson’s White House visit, Mr. Trump tweeted, after CNN retracted a story on Mr. Trump and Russia, that CNN was “looking at big management changes” and that its ratings were “way down!” — pretty much the same message Mr. Ginsberg had heard from Mr. Solomon.
Mr. Ginsberg was stunned. He confronted Mr. Solomon: “How did Trump know this?” Mr. Ginsberg thought the answer was obvious, but Mr. Solomon insisted that Mr. Stephenson hadn’t promised the president anything in return for Mr. Trump’s support of the merger.
“Of course they weren’t so stupid as to say, ‘Trump wants this, and if you do it he’ll do what we want,’” Mr. Bewkes recalled. What AT&T wanted at the time was for the administration to approve the merger. “But Randall was always probing me. ‘What do you think of our coverage?’ ‘Were our reporters being too hard on the White House and Trump?’ ‘Should Zucker be replaced?’ It was nothing explicit, but I got the drift.”
Mr. Stephenson acknowledged that he had discussed the anti-Trump tenor of CNN’s reporting with Mr. Bewkes. “If you ask me personally, would I have liked to have seen CNN’s coverage be more moderate? Yes, that would have been helpful,” Mr. Stephenson said.
Mr. Bewkes was adamant that the news division was independent, and that he’d do nothing to interfere with its coverage. He would not fire Mr. Zucker. If he did, “all your journalists will resign,” he warned Mr. Stephenson. “They’ll tell everyone to write stories about what you’re doing. Nobody will bring you a script in Hollywood if you become part of the dark empire.”
In a recent interview, Mr. Zucker said he, too, had been aware of discussions about getting rid of him to appease Mr. Trump.
Mr. Bewkes was so concerned that he took the issue to Time Warner’s board. He explained what was happening and said he wouldn’t replace Mr. Zucker. But Mr. Bewkes said he had realized that a $100 billion-plus merger might be hanging in the balance. If the board disagreed, it could fire him and find someone who would carry out what appeared to be AT&T’s — and by extension Mr. Trump’s — wishes.
The board (which included Mr. Trump’s future attorney general William P. Barr) gave him its unanimous backing. Mr. Zucker kept his job.
Once Makan Delrahim was installed as the administration’s antitrust chief in 2017, he offered Mr. Stephenson and AT&T a path forward: Divest either Turner Broadcasting or DirecTV or both in return for Justice Department approval of the merger.
Mr. Bewkes urged Mr. Stephenson to jump at that opportunity. The Justice Department’s offer provided cover for AT&T to get out of acquiring two troubled and declining assets. Mr. Stephenson said he had offered to divest a minority stake in Turner, but otherwise AT&T remained wedded to its vision of a vertically integrated media colossus. The Justice Department rejected Mr. Stephenson’s proposed compromise.
Any efforts to appease Mr. Trump went nowhere. AT&T later acknowledged that its payments to Mr. Cohen had reached $600,000. By the time Mr. Cohen came under criminal investigation for payments to the pornographic film actress Stormy Daniels, and the AT&T payments were revealed, Mr. Stephenson said hiring Mr. Cohen had been a “big mistake.”
At that point, Mr. Zucker probably had more job security than anyone at Time Warner.
‘Mr. Chairman’
Mr. Ginsberg’s and Mr. Bewkes’s accounts of AT&T efforts to appease Mr. Trump spread throughout Time Warner. That hardened suspicions within the ranks that AT&T’s executives — and their future bosses, assuming the deal was eventually approved — couldn’t be trusted. The contrast in the companies’ cultures was already evident: AT&T was formal and hierarchical, Time Warner freewheeling.
In one small but telling detail, almost everyone at AT&T referred to Mr. Stephenson not by his first or last name but as “the chairman.” At Warner, Mr. Bewkes was simply “Jeff.”
“I guess we should start calling you Mr. Chairman,” Olaf Olafsson, Time Warner’s strategy chief, had told Mr. Bewkes.
On May 16, 2017, while the deal was still undergoing regulatory scrutiny, Mr. Stephenson was in New York to receive the Steven J. Ross Humanitarian Award from the UJA-Federation of New York, a Jewish philanthropy. The award, named for the Warner Communications chairman who had built the company into an entertainment colossus, was a measure of Mr. Stephenson’s new stature. The venue, Cipriani’s, was packed with media and entertainment figures, and Time Warner executives took six tables. The event raised a record $2.5 million.
That the award went to a non-Jew from Texas did not go unnoticed. Mr. Chernin, who played a prominent role in the ceremony, called the event as Mr. Stephenson’s “honorary bar mitzvah,” adding, “Not since Menachem Begin shook hands with Anwar Sadat have Jews reached so far into a different culture to embrace the greater good.”
When it was Mr. Stephenson’s turn to speak, he alluded to the coming merger, saying his wife, who was in the audience, was getting jealous. “I spend more time with Jeff Bewkes than I do with her,” he maintained.
There was polite laughter — even though making his wife the brunt of a joke seemed like a throwback to “The Dick Van Dyke Show” — but at the Time Warner tables, there were raised eyebrows and a general rolling of eyes. For in fact, Mr. Stephenson had spent little time with Mr. Bewkes.
“It was a blatant lie,” Mr. Ginsberg recalled. This was corroborated by several other Time Warner executives who attended.
Mr. Stephenson said he didn’t recall the remark about his wife, but “obviously it was a joke.” Nonetheless, the remark prompted increased skepticism toward AT&T among members of Time Warner management.
A running team vs. a passing team
That summer, Mr. Bewkes accepted Mr. Stephenson’s invitation to address the AT&T board in Dallas. He ended up speaking for two hours, twice his allotted time. For sports-obsessed Texans, he chose a football analogy: AT&T is “a running team. You move slowly down the field, three yards and a cloud of dust. You depend on obedient execution.” By contrast, “we’re a passing team. We may miss two or three times. But when we complete a pass, we’re 50 yards down the line.”
He elaborated that AT&T employed hundreds of thousands of essentially fungible workers. Time Warner was different, with a relatively small number of executives given a high degree of discretion.
“We’re like a platoon fighting a guerrilla war in the jungle,” Mr. Bewkes recalled telling the board. “If you try to replace our team with a regimented army, you’re going to ruin all our network and studio businesses.”
More fundamentally, he warned that AT&T’s main strategy for competing with Netflix and Amazon was flawed: It wanted to funnel as much Warner content as possible to HBO Max.
On the contrary, he believed Time Warner’s strength was it was “like Switzerland,” selling to the highest and most appropriate bidder, both domestically and internationally, Mr. Bewkes contended. That’s why its television studio was so successful. Premium drama could go to HBO. But shows with mass market appeal, like “Friends” and “The Big Bang Theory” were better off at the ad-supported broadcast networks. Hollywood talent was attracted to Time Warner’s neutrality.
What AT&T brought to the mix was data from its DirecTV and cellular customers. Data could arguably help it compete for advertising dollars with Google and Facebook. Mr. Bewkes argued that AT&T should sell that data to all comers, including competitors like Comcast, Fox and Disney, expanding Time Warner’s longstanding strategy.
As Mr. Bewkes recalled the exchange, one director said AT&T would never share data with Comcast. “We hate them,” he said.
“Do you think I love them?” Mr. Bewkes responded. “This is not about who you like.”
“They looked at me like I was from another planet,” Mr. Bewkes said.
Mr. Stephenson said he had listened carefully to what Mr. Bewkes had to say, but concluded Warner Media had to go all-in on streaming. Mr. Bewkes was “too cautious,” he said.
A ‘herculean’ trial ends
After AT&T refused to divest either DirecTV or Turner, the Justice Department followed through with its threat to block the merger in November 2017.
“It might have been smart to walk away from the deal then,” Mr. Stephenson said, because the lawsuit meant extensive delays, management distractions and enormous litigation costs. “But I’d made a commitment to Jeff Bewkes, and I intended to honor that.” He also was opposed to any settlement that suggested he was willing to compromise CNN’s editorial independence, he said.
The Justice Department argued that the combination would be an anticompetitive juggernaut that would use its enormous power “as a weapon to hinder competition.”
Mr. Delrahim, at the Justice Department, stated repeatedly that the decision to file the suit had nothing to do with Mr. Trump’s hostility to CNN, but few at AT&T or Time Warner believed that.
After a federal trial that the judge, Richard J. Leon, called “historic,” “epic” and “herculean,” he issued an opinion on June 12, 2018, rejecting all the government’s arguments.
About a month later, about 50 AT&T executives, lawyers and bankers gathered in a private room at Midtown Manhattan’s Peninsula Hotel to celebrate.
A handful of Time Warner executives and their wives were also on hand, seated at a table together. Two were the newly departed chief executive, Mr. Bewkes, and strategy chief, Mr. Olafsson. Still with the company were the heads of its three divisions: Warner Bros., HBO and Turner Broadcasting.
AT&T’s general counsel, David McAtee, presented “awards,” or “mementos” — courtroom artist renderings of witnesses at the antitrust trial. Mr. Stephenson and Mr. Stankey each got one, as did Mr. Bewkes and various lawyers.
The executives’ appearances on the witness stand — indeed, the entire antitrust proceeding — were pretty much the last thing Time Warner leaders wanted to be reminded of.
Far from being welcomed into the fold at that dinner, the three Warner division heads were largely ignored. While they recognized that Mr. McAtee and his colleagues were trying to be gracious, from the Warner vantage point they were just another corporate conquest in a long line of deals.
After he got home that night, Mr. Plepler called Mr. Bewkes. “Could you believe that?” he asked.
“I know,” Mr. Bewkes said, recalling their conversation in a recent interview. “I’m sorry, but that’s who they are.”
As Mr. Olafsson later put it, “No one who was there that night could possibly believe we had ended up in the right hands.”
‘Oil and water’
Probably no two people better embodied the stark cultural differences between AT&T and Time Warner, now renamed Warner Media, than Mr. Plepler, HBO’s chief executive, and his new boss, Mr. Stankey. Mr. Plepler told friends that he and Mr. Stankey were “oil and water.”A 28-year veteran of Time Warner and HBO, Mr. Plepler, then 59, had started in public relations, knew just about everyone in journalism and Hollywood, and loved schmoozing with producers, writers, actors and journalists.
He was out on the town in New York or Hollywood or hosting dinner parties at his Upper East Side townhouse nearly every night. During his tenure, HBO had amassed 160 Emmy Awards and launched the ratings juggernaut “Game of Thrones.” He was perpetually tan and rarely wore a tie, preferring navy blazers and open-collar white shirts.
One of Mr. Plepler’s favorite sayings was “Culture eats strategy for breakfast,” a quote from the management guru Peter Drucker, meaning that the best-laid plans will run aground without the support of an enthusiastic work force.
Mr. Stankey had spent three decades moving up the ranks at AT&T after graduating with a degree in finance and getting an M.B.A. at the University of California, Los Angeles. Imposingly tall, with a square jaw and deep voice, he looked the part of a DC Comics superhero in civilian garb. He wasn’t a natural conversationalist and didn’t seem comfortable mingling at the Hollywood events where he was now expected to appear.
Basic differences between Mr. Stankey and Mr. Plepler were on display at an HBO forum on June 19, 2018, to introduce Mr. Stankey to HBO’s roughly 1,500 employees. Mr. Plepler kicked off the session with a video welcoming their new boss, featuring lighthearted greetings from HBO stars Larry David, Bill Maher and Julia Louis-Dreyfus. (John Oliver, host of HBO’s “Last Week Tonight,” had flatly refused to participate, saying no good would come from AT&T’s takeover, according to HBO’s longtime communications head, Quentin Schaffer, who helped put the video together.)
The charm offensive had minimal apparent effect. Mr. Stankey wasted little time praising HBO’s past success. He said HBO needed to significantly expand its content production to achieve his and AT&T’s strategic vision.
“We need hours a day” from viewers, Mr. Stankey said, according to a transcript of the meeting. “It’s not hours a week, and it’s not hours a month. We need hours a day. You are competing with devices that sit in people’s hands that capture their attention every 15 minutes.”
At another point, he invoked his spouse: “You will work very hard, and this next year will — my wife hates it when I say this — feel like childbirth. You’ll look back on it and be very fond of it, but it’s not going to feel great while you’re in the middle of it.”
While trying to be a congenial host, Mr. Plepler pushed back, repeating his mantra that when it came to content, “more isn’t better — only better is better.” In a concession to his new boss, he added, “But we need a lot more to be even better.”
Many HBO employees, who had been watching the proceedings on video, were shocked by Mr. Stankey’s blunt remarks and conspicuous lack of warmth toward Mr. Plepler.
When they expressed their dismay to Mr. Plepler, he counseled patience and, quoting the former Israeli prime minister Shimon Peres, described himself as an “unsatisfied optimist.” Once the new owners saw how good HBO was at what it did, he suggested, maybe they would back off.
Not in ‘Switzerland’ anymore
While Mr. Stankey never mentioned Netflix or Amazon during the employee meeting, his emphasis on “scale” in streaming made it clear that they were his models.
He made that explicit in a conversation with Mr. Schaffer. The two men spoke soon after Mr. Schaffer and Mr. Plepler had dinner at Nobu in Palo Alto, Calif., with Reed Hastings, the Netflix co-chief executive. During the dinner Mr. Hastings had mused that Netflix and HBO made an ideal streaming combination.
Afterward, Mr. Schaffer said, he asked Mr. Stankey what he thought of the idea.
Mr. Stankey replied that Netflix was the “enemy” and Warner would “crush” it.
As Mr. Schaffer recalled, “He shot the idea down in one second.”
(The AT&T spokesman denied that Mr. Stankey had said he wanted to “crush” Netflix but confirmed that he had dismissed any notion of working with a competitor. In other public contexts, Mr. Stankey elaborated that there were likely to be only a few large streaming survivors, and that he wanted HBO Max to be one of them.)
Mr. Stankey was also determined to promote Warner’s streaming content exclusively through AT&T’s streaming service. HBO subscriptions would no longer be sold through Amazon, Hulu and Apple.
Warner movies would be available only on HBO Max rather than other distributors. Hit Warner-produced television shows like “Friends” and “The Big Bang Theory” would be withdrawn from Netflix.
In other words, Mr. Stankey rejected virtually every component of Mr. Bewkes’s advice to AT&T’s board. Warner would no longer be “Switzerland.”
Mr. Plepler warned Mr. Stankey that expanding production while limiting streaming distribution to HBO Max would be enormously expensive — billions of dollars in reduced revenue from sales to other outlets and an enormous increase in expenses.
In accord with Mr. Stankey’s stated penchant for slide shows at moments of “seminal importance,” Mr. Plepler created an eight-point presentation and delivered it in September 2018, according to someone present at the meeting. It called for merging HBO and Cinemax, HBO’s companion network that focused on theatrically released films and documentaries; investing more in high-quality programming; and expanding distribution. Significantly, it did not propose making the HBO Max streaming service available only through AT&T, which HBO estimated would put $7 billion in revenue at risk.
Mr. Plepler wasn’t against a streaming-first strategy, but he wanted it to be evolutionary.
At one point, Mr. Stankey asked Stephen Boulton-Wallace, head of research and program strategy for HBO, to model the effect of removing “Friends” from Netflix and making it available exclusively on HBO Max. Mr. Boulton-Wallace told him that he didn’t need to model anything. Given Netflix’s lucrative payments for the show, the number of new subscribers needed was so huge that common sense dictated that it couldn’t be done.
Mr. Stankey also asked him to model the increase in production budgets to reach the scale necessary to compete with Netflix and Amazon. AT&T had projections that HBO Max would reach 100 million customers and achieve 59 percent household penetration. That was a formidable task. At the time, Netflix had access to about 40,000 hours of programming and Amazon 60,000. HBO had far less. Moreover, with its sophisticated, premium content, HBO had never reached more than a third of U.S. households, even with its most popular hits.
To reach its goals, AT&T would have to not only drastically ramp up production but also broaden its appeal far beyond the upscale demographic of the existing HBO audience. HBO’s longstanding strategy was to deliver a boutique product, not aim for the masses.
Mr. Boulton-Wallace estimated that HBO would need to more than double its production budget, to more than $9 billion a year, far less than Netflix was spending. His model projected that HBO would move in short order from 30 percent profit margins to a loss.
Mr. Boulton-Wallace warned Mr. Stankey that he’d never meet his ambitious customer targets.
Mr. Stankey dismissed Mr. Boulton-Wallace’s concerns and data out of hand. He said it was impossible to model a “paradigm shift.”
(The AT&T spokesman said AT&T had modeled “hundreds” of possibilities in addition to Mr. Boulton-Wallace’s work.)
It was increasingly apparent to some Warner employees that AT&T executives didn’t welcome dissent. The level of paranoia was so high at Warner Bros., according to people there at the time, that one Warner executive referred to Dallas executives as “the Stasi,” a reference to the East German secret police.
A ‘great cultural fit’
Mr. Plepler, by nature an optimist, kept hoping things would work out. With “Game of Thrones” on its way to its eighth and final season, HBO had never been more profitable. But toward the end of 2018, he realized it was time to leave.
In fact, Mr. Stankey was already meeting with Robert Greenblatt, who had just stepped down after a successful run as chairman of NBC Entertainment, where he reported to Steve Burke, the Comcast executive who ran its NBCUniversal subsidiary.
Early in 2019, Mr. Plepler called Mr. Stankey in Dallas. He told him that Mr. Stankey was entitled to run HBO as he saw fit, and that he should have someone at the helm who was as passionate about Mr. Stankey’s vision as Mr. Plepler was about his.
Mr. Plepler said he could be gone in a week.
Mr. Stankey later offered him a dinner or going-away party, but Mr. Plepler declined. His departure was formally announced in February.
A week after Mr. Plepler’s exit, Mr. Stankey named Mr. Greenblatt as chairman of Warner Media entertainment, where he’d oversee HBO, some of the Turner assets and, critically, the launch of HBO Max. Mr. Stankey said he wanted to see the flagship streaming service up and running in just nine months. Disney was rolling out Disney+ — seen as a looming threat — in November.
In contrast to his dealings with Mr. Plepler, Mr. Stankey seemed to have struck up a warm relationship with Mr. Tsujihara, the first Asian American man to run a major studio and a popular fixture in Hollywood.
Mr. Tsujihara sat next to Mr. Stankey at the Academy Awards in February, and when he reorganized the Turner brands, Mr. Stankey gave Mr. Tsujihara added responsibility for the Cartoon Network and Turner Classic Movies.
Mr. Stankey was aware that Time Warner had twice investigated Mr. Tsujihara after he embarked on a brief sexual relationship with a British actress, Charlotte Kirk. Ms. Kirk had never lodged a complaint with Time Warner, and issued a public statement saying she had no complaints about his behavior. The company concluded that the relationship was consensual.
Two days after Warner Media announced Mr. Tsujihara’s new responsibilities, The Hollywood Reporter published a series of graphic text messages between Ms. Kirk and Mr. Tsujihara in which the actress pleaded for his help landing auditions and roles and the executive offered to look into opportunities for her.
Though none clearly established any wrongdoing, there was an uproar in the wake of the Harvey Weinstein revelations, and Warner Media performed another investigation focused on whether Mr. Tsujihara had used his influence to get Ms. Kirk roles. (She had small parts in two Warner films.) Still, Mr. Stankey kept Mr. Tsujihara in his post.
Mr. Stankey had failed to reckon with the depth of outrage fueled by the #MeToo movement. Warner was in negotiations with J.J. Abrams, the filmmaker responsible for such hits as “Star Trek,” several “Star Wars” sequels and “Mission Impossible III,” along with his wife, Katie McGrath, who ran Bad Robot, their production company.
Ms. McGrath had emerged as an outspoken champion of the #MeToo movement and was a co-founder of Time’s Up, a Hollywood initiative to fight sexual harassment. She told Mr. Stankey that it wasn’t her place to tell him how to run his company, but that Bad Robot couldn’t be associated with a studio run by Mr. Tsujihara.
Mr. Stankey announced Mr. Tsujihara’s departure two weeks later. “Kevin has acknowledged that his mistakes are inconsistent with the company’s leadership expectations and could impact the company’s ability to execute going forward,” Mr. Stankey wrote in a memo to employees.
Warner Media reached a five-year deal with Mr. Abrams and Ms. McGrath, agreeing to pay $250 million to keep Bad Robot producing under the Warner Media umbrella.
Mr. Stankey appeared to anguish over the decision to force out Mr. Tsujihara. He insisted on giving Mr. Tsujihara two going-away parties, one in Hollywood on a Warner soundstage, the other in New York at the Mandarin Oriental hotel. Under the circumstances, both were awkward affairs.
To replace Mr. Tsujihara, Mr. Stankey passed over a couple of internal candidates, Toby Emmerich, chairman of the movie studio, and Peter Roth, in charge of television, both well known and respected in Hollywood, and named Ann Sarnoff, the first woman to run a major studio.
While the added diversity at the homogeneous, male-dominated AT&T (not to mention Warner) was widely applauded, Ms. Sarnoff’s résumé left many industry participants scratching their heads: Her previous duties were at BBC Worldwide North America; Dow Jones (publisher of The Wall Street Journal), where she oversaw the conference business; and the Women’s National Basketball Association.
Mr. Stankey seemed impressed with her successful launch of BritBox, a BBC streaming channel, and praised her as a “great cultural fit” for Warner Media.
No joint ventures
One way to reduce costs while expanding a viable streaming service was to enter into joint ventures. Mr. Stankey met with David Zaslav, the chief executive of Discovery, which owned a portfolio of nonfiction and reality cable channels.
He also met with Comcast’s chairman, Brian Roberts, and NBCUniversal’s Mr. Burke. Together, NBCUniversal and Warner television had 14 of the top comedies of all time, including NBCUniversal’s “30 Rock,” “The Office” and “Cheers” and Warner’s “Friends” and “Seinfeld.”
Neither encounter led to any deal. Mr. Stankey told people that he didn’t believe in joint ventures and would never co-run a business.
AT&T’s costly, go-it-alone strategy and the management upheavals at Warner Media attracted the attention of Peter Singer, the activist investor and hedge fund manager known for his libertarian politics and large contributions to Republican candidates. In September 2019, his investment firm, Elliott Investment Management, disclosed a $3.2 billion stake in AT&T and called for management changes.
The firm was especially critical of the Time Warner deal, writing in a letter to the board that more than a year later, AT&T had “yet to articulate a clear strategic rationale” for the combination. The letter added, “There is still confusion over strategy and a growing sense that AT&T doesn’t have a plan.”
Elliott backed off and sold its stake that October after AT&T pledged not to make any other major acquisitions.
The move was a rare loss for Elliott: AT&T’s stock was trading at just over $24, $8 below where it was when Elliott announced its stake.
Leading ‘AT&T into the future’
The financial implications of AT&T’s strategy were unmistakable by the end of 2019 — the first full year AT&T had owned Warner Media — and the first quarter of 2020, even before the pandemic upended Americans’ lives and the entertainment business. That quarter, AT&T reported that Warner Media’s revenue had declined a billion dollars from the year before, and earnings dropped 22.8 percent.
AT&T didn’t offer much of an explanation but cited lower revenue from the licensing deals it had terminated in anticipation of the launch of HBO Max, scheduled for May.
The day the results were announced, AT&T said Mr. Stankey would replace Mr. Stephenson as chief executive.
Mr. Stephenson, who had recommended Mr. Stankey to the board, noted that there were many candidates to run a telecommunications company and many to run a media company — but virtually none with experience running both. As he departed, Mr. Stephenson hailed Mr. Stankey as “the right person to lead AT&T into the future.”
That opened up the top job at Warner Media less than two years after Mr. Stankey had taken it. One candidate seemed to be right in front of him: Jeff Zucker, who had overseen the creation of Hulu while at NBCUniversal and was much admired within Warner Media for his profitable stewardship of CNN.
Mr. Stankey did consider Mr. Zucker for the job. But that April, he announced that Jason Kilar — who had once worked for Mr. Zucker — would be the next chief executive of Warner Media.
The news surprised Mr. Zucker. Although he was well aware of Mr. Kilar’s strengths and weaknesses, Mr. Stankey had never asked his opinion about him.
Like Ms. Sarnoff, Mr. Kilar had a more unconventional résumé by Hollywood standards. With a Harvard M.B.A., he had spent nine years at Amazon’s software division before joining Hulu. While the experience made him a streaming pioneer, Mr. Kilar hadn’t been at Hulu for several years. Moreover, Hulu was relatively small (2,400 employees in 2019) while Warner Media had nearly 30,000 employees.
HBO Max debuted in May 2020 with 10,000 hours of programming, including “Game of Thrones,” “Friends” and the Harry Potter movies. But it lacked a major original new series like the Disney+ streaming hit “The Mandalorian.” It also carried a premium price by streaming standards, locked in by HBO’s monthly fee of $14.99.
A month later, Mr. Stankey announced that HBO Max had attracted four million subscribers, which he said was ahead of projection. Mr. Kilar fired Mr. Greenblatt soon after, as he consolidated HBO, HBO Max and the Warner Bros. studio into one administrative unit.
By December 2020, HBO Max had attracted only 12.6 million subscribers. In contrast, Disney+ had signed up 10 million on its first day. That December, Disney was at 87 million subscribers. HBO Max’s archrival, Netflix, stood at 195 million.
From a ‘win, win, win’ to a loss
Mr. Kilar embraced the promise of streaming with almost religious fervor. He told Mr. Zucker that he wanted CNN to start a stand-alone streaming news service of its own, later named CNN+, Mr. Zucker recalled.
Mr. Kilar told him that he believed AT&T intended to spin off Warner Media and, given Wall Street’s infatuation with streaming, a stand-alone news service alongside HBO Max would add value.
Mr. Zucker thought a separate news streaming service would make sense someday, but not yet. He thought he might be able to “slow walk” the idea, he recalled. But Mr. Kilar insisted. Mr. Zucker dutifully got on board, but without any great enthusiasm. (In a recent interview, Mr. Kilar said Mr. Zucker had never communicated any hesitation about CNN+ to him.)
To many in Hollywood, Mr. Kilar’s (and Mr. Stankey’s) lack of experience was on display that December when Mr. Kilar announced that all of Warner’s films slated for 2021, including big-budget tent poles like “Dune” and “Matrix 4,” would be released simultaneously in theaters and on HBO Max, upending the long tradition of exclusive release to movie theaters.
While prompted in large part by the collapse of the traditional box office during the pandemic, it also reflected the importance of HBO Max to AT&T’s overall strategy.
The move generated a storm of criticism, which Mr. Kilar described as “painful” in an interview with The Times. Mr. Stankey staunchly defended him, publicly calling the move a “win, win, win.”
But the recurring public relations headaches and financial pressures appeared to be weighing on Mr. Stankey. He was ready to wash his hands of the entire media enterprise. At the time, AT&T was faced with a $5 billion or more capital investment to deploy 5G spectrum. That cost, on top of the added billions being consumed by HBO Max, meant AT&T began unraveling its ambitious foray into media.
In February it announced that it would spin off DirecTV to a private equity group, TPG, though AT&T would still own 70 percent. In a rare concession, AT&T acknowledged that “some aspects” of the acquisition “hadn’t worked out as expected.”
Warner Media was next on the chopping block. Mr. Stankey consulted few people about his plans to combine the Warner assets with Discovery and put Discovery’s Mr. Zaslav in charge — the very person he had earlier rejected as a joint venture partner. That left no place for Mr. Kilar, who said he had been kept in the dark until Mr. Stankey told him about it shortly before it was announced.
Mr. Kilar believed this was a big mistake. Discovery’s popular but down-market unscripted programming — like “Gold Rush” and “Naked and Afraid” — added little of value to Warner’s premium assets. If AT&T was so desperate for capital, it could spin off Warner Media as a stand-alone company, unloading some of its debt. But Mr. Stankey’s mind was made up.
Mr. Stankey also called Mr. Stephenson just before the deal was made public. “I had zero input,” Mr. Stephenson said. “Had I still been chairman, I would not have advocated taking the business apart.”
But Mr. Stephenson didn’t convey his disagreement to Mr. Stankey. “You’re sitting in the chair,” Mr. Stephenson recalled telling him.
AT&T announced the deal with Discovery on May 17, 2021, and what was, in effect, its exit from the media and entertainment business. It was hardly a clean break: AT&T would still name a majority of the new company’s board, and AT&T shareholders would own 71 percent of the shares.
AT&T’s 2021 results, released last January, showed the relentless pressure on earnings from the soaring costs of producing movies and TV shows. Even though revenue at Warner Media jumped by a billion dollars as the pandemic eased, its adjusted earnings dropped 36 percent. Operating expenses rose 38 percent but, even at $8.3 billion, weren’t even half of what Netflix and Amazon were spending.
After the results were announced, AT&T shares dropped more than 8 percent to just over $19, less than they were at the depths of the pandemic, even as the broad market was soaring to new highs. A month later, AT&T cut its dividend in half.
At a J.P. Morgan conference in May, an analyst, Phil Cusick, pointed out that Mr. Stankey had “reversed six years of strategic change at AT&T in three months.”
Mr. Stankey responded that HBO Max “would not be where it is today” without AT&T and that owning Warner Media had “lowered churn” at AT&T, without offering any data to back that up.
“We got a long way down that path” toward the deal’s strategic objectives, he maintained, but complained that AT&T had never gotten any credit on Wall Street.
Though lame ducks, Mr. Stankey and Mr. Kilar were still in charge while the deal underwent regulatory review. Plans for CNN+ continued apace, with Mr. Kilar insisting that once it was up and running, it would be impossible for Discovery to kill it, according to Mr. Zucker. There was talk that CNN’s Mr. Zucker would get a big promotion once the deal closed; he and Mr. Zaslav were close friends from their days working together at NBCUniversal.
Mr. Zaslav had no authority to tell Mr. Kilar what to do, but in a series of conversations he made it clear that he wished Mr. Kilar would delay the debut of CNN+, according to a person familiar with the discussions. Perhaps he was too subtle. That is not the message Mr. Kilar got, and in any event, he was determined to press forward, according to another person involved in the discussions.
In June, Mr. Zucker made a presentation in Dallas to AT&T’s board, asking to approve the CNN+ launch and for $350 million to spend on it, which he got. He hired an array of expensive talent like the Fox News anchor Chris Wallace and the “Desperate Housewives” star Eva Longoria.
But that $350 million didn’t show up in the CNN budget or projections and wasn’t disclosed to Discovery, something AT&T’s Mr. Cook acknowledged. Mr. Zucker said he had warned Mr. Kilar that the money had to be accounted for and disclosed.
That issue was still unresolved in February, when Mr. Zucker acknowledged that he had failed to report a consensual romantic relationship with his top lieutenant, Allison Gollust. At the behest of Mr. Kilar, backed by Mr. Stankey, both were forced to resign. A media firestorm ensued, with renewed questions about how the AT&T executives had handled the crisis. Mr. Trump seized the opportunity to call Mr. Zucker a “world-class sleazebag.”
CNN+ debuted as scheduled on March 29. After a week, it had only 100,000 subscribers, even at a steeply discounted rate of $2.99 per month. CNBC reported that fewer than 10,000 people a day were watching the streaming service. Nearly 800,000 watched CNN on cable.
The end of CNN+
Shares in Warner Bros. Discovery began trading on April 11 with a market capitalization of nearly $50 billion. Mr. Kilar and Ms. Sarnoff both resigned. When Discovery executives gained access to the company’s financial records after the closing (which finally reflected the $350 million at CNN+), it would be hard to overstate Mr. Zaslav’s dismay at what AT&T had left behind.
Just 10 days later, Mr. Zaslav pulled the plug on CNN+.
It took some time longer to discover that quality control appeared to have gone off the rails at the movie studio. Mr. Zaslav took the rare step of canceling the much-anticipated and nearly complete “Batgirl,” which had cost upward of $90 million; a Scooby-Doo sequel; and six other films destined for HBO Max that Discovery managers deemed all but unwatchable.
In a recent interview, Ms. Sarnoff defended her track record at Warner. She mentioned achieving “record financial results in 2021,” “breaking corporate internal silos,” “fueling the growth of HBO Max” and creating hits like “Ted Lasso” and “Abbott Elementary” despite a pandemic and the pending spinoff of the company.
Mr. Kilar, too, praised Warner’s achievements during his tenure and said he was proud of what Ms. Sarnoff and his team had accomplished.
At a conference this week, Mr. Zaslav described conditions at Warner as “messier” and “much worse than we thought.”
Mr. Zaslav reversed nearly every strategic decision made by AT&T: Feature films would again debut at movie theaters before moving to streaming; HBO Max would not try to “crush” or outspend Netflix and Amazon; Warner would again sell its streaming content to other distributors; and it promptly struck a renewed deal to distribute HBO Max through Amazon. It was pretty much the strategy that Mr. Bewkes had advocated during his appearance before AT&T’s board, except that four years and billions in market capitalization had disappeared in the interim.
Mr. Zaslav was especially upset at what he saw as projections that had overstated the value of Warner Media. Teams of lawyers examined the figures and questioned Warner Media’s internal finance officers.
Gunnar Wiedenfels, Warner’s new chief financial officer, alluded to the issue during Warner’s earnings call on Aug. 4. “Certain legacy Warner Media budget projections that were made available to us before closing varied from what we now view as legacy Warner Media’s budget baseline post-closing,” Mr. Wiedenfels said, putting the discrepancy at “roughly $2 billion.”
A Warner Bros. Discovery spokesman, Nathaniel Brown, declined to identify what Discovery had taken issue with. Others said it included the $350 million budgeted for CNN+ and accounting tactics that Discovery believed overstated revenue and understated costs at the studio.
Asked about these issues and Mr. Wiedenfels’s statement, the AT&T spokesman, Mr. Cook, said Discovery and the three law firms that advised it had full access to all of Warner Media’s audited financial statements through Dec. 31, 2021. The merger agreement also stated that Discovery could not rely on projections or budgets beyond that date.
AT&T acknowledged that it hadn’t disclosed spending at CNN+ or at the Warner studio, or its post-Dec. 31 margins at HBO, deeming that to be highly competitive information. Sharing it before closing, the company said, could have been seen as an antitrust violation. And AT&T stressed that Warner had subsequently filed its own audited financial statements that failed to note any accounting issues.
In conversations with other media figures, Mr. Zaslav stopped short of accusing AT&T of fraud, but did express anger, three people familiar with the conversations said.
Mr. Zaslav had to tread carefully, given that AT&T appointed seven of Warner Bros. Discovery’s 13 board members. Mr. Brown denied that Mr. Zaslav ever discussed taking the issues to AT&T’s board unless AT&T offered substantial compensation to Warner Bros. Discovery.
AT&T did agree to pay the $1.2 billion in cash and to again offer HBO Max to its wireless customers. It disclosed the payment in an Aug. 4 filing with the Securities and Exchange Commission.
Mr. Brown wouldn’t say how those concessions had come about but said all disputes with AT&T had been resolved satisfactorily. Mr. Zaslav declined to be interviewed.
AT&T’s Mr. Cook wouldn’t comment on any communications between Mr. Zaslav, Mr. Stankey and AT&T’s board. A so-called purchase price adjustment clause was part of the merger agreement, and he said the HBO Max-AT&T wireless deal had been renegotiated in the normal course of business.
Also on Aug. 4, Warner Bros. Discovery reported a $3.4 billion adjusted quarterly loss, $1 billion of it related to merger costs. The results were far worse than expected. Its new direct-to-consumer unit, which includes HBO Max, lost $560 million during the quarter, and costs soared 33 percent to $2.7 billion.
Warner reported its latest earnings on Nov. 3. Even with HBO’s successful launch of “House of the Dragon,” the direct-to-consumer operation lost $634 million. Overall revenues declined 7 percent, missing Wall Street estimates, and the company reported a $2.3 billion operating loss. The next day, the company’s stock dropped 13 percent, hitting a new low.
Mr. Zaslav said this week that HBO had gone from $2 billion in profit in 2019 to a loss of $3 billion.
No regrets
In fairness to Mr. Stephenson and Mr. Stankey, the principal architects of AT&T’s ill-fated foray into media and entertainment, their efforts were handicapped by events beyond their control. The government’s antitrust suit cost them two years, leaving them even further behind their rivals. It was their misfortune to make a multibillion-dollar bet on streaming just as investors’ infatuation with the model started to fade.
On the creative front, Warner Media could point to many successes. In September, it won 40 Emmys, the most of any company. Thirty-four went to HBO and four to HBO Max. Warner Bros. led the 2022 Academy Awards with seven wins.
But for sheer strategic miscalculation and poor execution, AT&T’s management of Warner Media may have no rival in recent corporate history.
Yet there has been no accountability on the part of the AT&T board or shareholders. Mr. Stankey remains chief executive and has been hailed for his bold decisions to unload DirectTV and Warner Media, even though he was in large part responsible for buying them.
Last year, Mr. Stankey earned $24.8 million at AT&T. Mr. Stephenson left with a pension valued at $64 million and $27.4 million in deferred compensation.
Mr. Stephenson said in our recent interview that serious cultural issues had hindered the merger. Some of the “media people never really gave us a chance,” he said. “They were resentful from the beginning that a big phone company from Texas was buying them.” (Mr. Bewkes acknowledged that there was some truth to that.)
And Mr. Stephenson said that had he known Mr. Trump would win the presidency, he probably wouldn’t have done the deal in light of Mr. Trump’s open hostility.
“I wouldn’t have put my employees or Time Warner’s employees through that,” he said, referring to the antitrust case. “It was a terrible time.”
But “put that aside,” he said, and he would have done the deal again. He noted that HBO had doubled its digital subscriptions under AT&T’s ownership. “HBO had been a stagnant business for 10 years,” he said. “We made it an exciting and dynamic business again.”
(Former Time Warner executives took strong issue with that. Mr. Bewkes said that HBO had record revenue, profits and subscriber growth at the time the AT&T deal was announced.)
In response to questions about the merger, AT&T issued this statement:
“The Time Warner that AT&T acquired enjoyed world-class assets and talent but had no discernible path to building a global direct-to-consumer business. By contrast, when AT&T sold WarnerMedia to Discovery, the same business was growing and competing globally in ways it never could have prior to our acquisition.”
Mr. Bewkes said he had no regrets about selling Time Warner when he did, and his shareholders have every reason to be grateful. But it has been “heartbreaking,” he said, to watch the fate of the Warner properties — and the talented people — he once managed.
“The level of malpractice is something I would never have believed possible,” he said of AT&T’s stewardship. “The value destruction has been monumental.”
The post Was This $100 Billion Deal the Worst Merger Ever? appeared first on New York Times.
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| From: Glenn Petersen | 12/19/2022 6:29:53 AM | | | | | | The Education of CNN’s Chris Licht
New York Times
December 18, 2022
When Chris Licht told his boss, Stephen Colbert, the host of the CBS program “Late Show With Stephen Colbert,” in February that he had been offered the chief executive job at CNN, Mr. Colbert was blunt: “Definitely don’t go do that.”
But for Mr. Licht, nothing less than democracy itself was at stake. He argued he could make CNN a news channel that people trusted, as opposed to one that monetized partisan combat.
“Oh, man, you used to be in news, remember?” Mr. Colbert recalled telling him. “You said this was so much nicer — 12 weeks off, good pay, laugh for an hour every night. Everyone is really nice; you can say anything you want, and nobody leaks it. It’s great.”
“CNN would be lucky to get you,” Mr. Colbert continued. “But you’re my friend, and I’m telling you not to go.”
“This is a calling,” Mr. Licht countered.
At which point Mr. Colbert stopped trying to dissuade him: “I can’t negotiate with a calling.”
On Feb. 28, Mr. Licht was named CNN’s new chief executive. Since then, he and Mr. Colbert have spoken nearly every Friday. Each time, Mr. Colbert begins with the same four words:
“I told you so.”
By almost any measure, Mr. Licht, 51, has had a rough start. His first major act was to kill the network’s fledgling streaming service, CNN+, and fire 400 or so people working on it. CNN’s revenue and profits have plunged to a projected $750 million this year, down from $1.25 billion last year, partly from the costs associated with CNN+, the network acknowledged. CNN’s ratings declined, on average, this year compared with 2021, according to Nielsen, with CNN falling behind MSNBC for the first time in prime time on election night among total viewers. (CNN prevailed in the coveted 25-to-54 age group.)
At the end of November, Mr. Licht levied another round of job cuts — this time just under 10 percent of CNN’s work force of about 4,000, which plunged morale further. Among the casualties were familiar commentators like Chris Cillizza, key behind-the-scenes producers with decades of experience, and the entirety of HLN, CNN’s sister network, and its popular morning host, Robin Meade.
A chorus of media pundits has pounced on every tidbit of bad news. Mr. Licht’s early programming efforts aimed at repositioning the network as broader and less partisan have prompted howls of criticism, with former MSNBC host and former colleague Keith Olbermann publicly calling Mr. Licht a “TV Fascist” after he moved Don Lemon, a liberal host, from a prime-time slot to a revamped morning show.
“The uninformed vitriol, especially from the left, has been stunning,” Mr. Licht said in one of several interviews with The New York Times spanning his nearly eight-month tenure. “Which proves my point: so much of what passes for news is name-calling, half-truths and desperation.”
Mr. Licht said he was under no illusion that stepping into the chief executive job would be easy or make him popular. The network’s previous parent, the telecommunications giant AT&T, had just spun off its Warner Media subsidiary, which included CNN, into a new company run by Discovery’s chief executive, David Zaslav.
Just two months before the companies merged and only weeks before CNN+ was introduced to the world, the network’s popular and longtime chief executive, Jeff Zucker, was forced to resign after failing to disclose a romantic relationship with his top lieutenant, Allison Gollust. Some at CNN felt Mr. Zucker had been unfairly sacrificed and remained staunchly loyal to their former boss.
CNN had also become the poster child for the poisoned relationship between former President Donald J. Trump and mainstream media organizations. Mr. Trump repeatedly branded CNN as “fake news,” and his administration engaged in open warfare with CNN correspondents like Jim Acosta, who Mr. Tump once called “ a rude, terrible person” during a news conference. In 2018, CNN’s New York headquarters had to be evacuated after a bomb threat.
CNN remained enviably profitable, earning over $1 billion a year for the past five years. But cable news, along with all cable channels, has been in secular decline, troubled by shifting viewer habits in an era of cord cutting and an exodus to streaming services and online news sites.
It’s not clear anyone could surmount those challenges, let alone someone who’d just spent nearly six years at a late-night entertainment show and had never managed a complex, globe-spanning organization with thousands of employees.
So why even take the job?
***Mr. Licht seemed to have TV news in his DNA. As a child, he’d created a fictional TV news network, WBC, and produced his own newscast using a VCR camera in his basement in Newtown, Conn. At about the age of 9, he met the NBC legal correspondent Carl Stern on a family vacation and, in Mr. Licht’s telling, “stuck to him like glue.” Mr. Licht pried the newsman’s phone number from him and used it regularly. “I was obsessed,” Mr. Licht said.
After college at Syracuse University, Mr. Licht landed jobs at NBC affiliates in Los Angeles and San Francisco. As a reporter and producer, he covered a mass shooting in San Bernardino, the plane crash that killed John F. Kennedy Jr., two presidential campaigns and three Olympics.
In 2005, he moved to NBC’s sibling network, MSNBC, soon becoming an executive producer for “Morning Joe,” which he helped develop into an improbable success in its hotly competitive morning time slot. Notably, the two hosts, the former Republican politician Joe Scarborough and the more liberal former CBS correspondent Mika Brzezinski, straddled the political divide. The tension between them seemed to enhance their audience appeal. Mr. Licht encouraged them to be themselves and embrace the unexpected. (They later married.)
Mr. Licht moved to CBS in 2010, where he’d scored another early morning success. He lifted ratings at the perennial also-ran “CBS This Morning” on the strength of the program’s three hosts, Charlie Rose, Gayle King and Norah O’Donnell, and an emphasis on news and in-depth interviews, rather than the lighter fare format of its competitors “Today” and “Good Morning America.”
After having a brain aneurysm in 2010 when he was still under 40, Mr. Licht wrote a book about what he learned from the experience, while still describing himself as a “killer TV producer” with “no urge to surrender my spot in the fast lane,” even after the near-fatal incident.
Restless after six years at “This Morning,” in 2016 he joined the then-faltering CBS program “Late Show With Stephen Colbert.” Within a year, Mr. Colbert had seized the late-night ratings crown from Jimmy Fallon of NBC’s “Tonight Show.”
Soon after the Warner-Discovery deal was announced, Mr. Zaslav summoned Mr. Licht to Discovery’s headquarters in Manhattan on 19th Street and asked what he thought of CNN.
Mr. Licht told him he had no interest in running it. “I got out of news, and I’m not going back,” Mr. Licht had insisted.
***Mr. Zaslav ignored the demurral. Over the next several weeks, he kept making the case to Mr. Licht. In fact, Mr. Zaslav said in an interview that he never considered anyone else for the job.
The two men have known each other for 15 years, since both were working at NBC, where Mr. Zaslav helped start MSNBC. In the years since, they have had breakfast once a quarter. Mr. Licht has looked to Mr. Zaslav as a mentor, and Mr. Zaslav has admired Mr. Licht’s work ethic and drive.
“He’s a fighter, and he likes to win,” Mr. Zaslav said.
At their first meeting, Mr. Zaslav argued that running CNN would be “a great opportunity to build the No. 1 news brand in the world,” and “the most trusted brand in news where people go every day and in a crisis for the best version of the truth.”
And more than that: “This is important for America. It’s important for a functioning society.”
Mr. Licht and Mr. Zaslav — not to mention Warner’s largest shareholder, the media mogul John Malone — were philosophically aligned. Fox and MSNBC were “advocacy” networks, as Mr. Zaslav put it, a proven business model appealing to like-minded viewers but of scant, if any, value as a public service. Whether by design or happenstance, he believed CNN had tacked left, a pale version of MSNBC that nonetheless alienated wide parts of the American electorate with a focus on politics and the president at the time, Mr. Trump.
Ted Turner’s mantra had always been “the news is the star.” Mr. Trump “is not the star,” Mr. Zaslav said.
Yet Mr. Licht was noncommittal. On a subsequent phone call, Mr. Zaslav urged Mr. Licht to think about CNN and whether he’d be interested in the top job. After Mr. Licht hung up, his wife, Jennifer Blanco Licht, a former TV executive herself, asked: “Is this crazy? I think you should do it.”
The two men continued the conversation on a long walk in Central Park. (They both live near the park.) During that conversation, Mr. Zaslav warned Mr. Licht that he’d be closely scrutinized and judged harshly. Is your family ready for this? Are you ready for this? Because “it will be brutal,” Mr. Zaslav said.
Mr. Licht said he doesn’t recall Mr. Zaslav ever offering him the job, or his accepting it. At one point, Mr. Zaslav simply asked, “Who’s your lawyer?” and started acting like Mr. Licht was CNN’s future chief executive. A contract ensued.
On their first lunch afterward, at Mr. Zaslav’s usual corner table at Gramercy Tavern, Mr. Zaslav indicated their yearslong relationship had fundamentally changed. “We’ve been friends for 15 years,” Mr. Zaslav said. “We’re not friends any more. You work for me.”
***Almost immediately, their shared vision of saving democracy ran into the harsh reality of cable news economics.
With Fox News and MSNBC having already staked out the right and left ends of the political spectrum, attracting the middle (what Mr. Licht referred to as “normal” people) has proved elusive.
Mr. Zaslav had stressed that he didn’t care — at least not much — about CNN’s current ratings, revenue or profitability. He recognized that it would take years to reposition and rebuild the network. But even he had his limits.
AT&T’s board had approved an ambitious budget of $350 million for CNN+, much of it already spent by the time Mr. Licht arrived. Many more millions would be needed. With Warner facing pressure from Wall Street to find $3 billion in savings, on April 21, Mr. Licht killed the streaming service after less than a month on air.
In an effort to restore morale and calm anxiety, Mr. Licht assured CNN employees at a network-wide town hall meeting on May 5 that Warner Bros. Discovery didn’t anticipate further job cuts at CNN because there was no overlap between the news network and Discovery’s cable channels, and thus there wasn’t anyone else doing the same jobs that would need to be cut.
In a series of additional town hall meetings, most of them leaked almost immediately to The New York Times and other news outlets, Mr. Licht also laid the groundwork for the network’s shift to broader, less political and less partisan coverage. This was not, he stressed repeatedly, a move to the “center,” a boring, political neutral zone that Mr. Licht wasn’t even sure existed. Rather, it was an attempt to explore controversial issues from varied perspectives — not to tell people “what to think,” as he put it, but “how to think,” or what he called a “blueprint for how to make decisions.”
In July, Mr. Licht made a highly symbolic pilgrimage to Capitol Hill noteworthy for its inclusion of Republicans like the House minority leader, Kevin McCarthy, and Senator Tom Cotton of Arkansas. Although he spent equal time with Democratic leaders like House Speaker Nancy Pelosi and Senator Amy Klobuchar of Minnesota, Mr. Licht was irritated that his visit was billed as an “apology tour” and effort to coax Republicans back onto the network — part of CNN’s perceived move to the right.
After long absences, several Republicans have since appeared on CNN, including Mr. McCarthy and Senator Rick Scott of Florida.
Featuring hosts and guests with opposing points of view and playing up controversy has paid ratings dividends on cable in the past, notably on CNN’s own “Crossfire,” which came under criticism for evolving into to a verbal food fight criticized by the comedian Jon Stewart as “hurting America.”
But Mr. Licht said he wasn’t interested in controversy for its own sake, but to offer a “rational conversation about polarizing issues.” After watching CNN, he hopes people will “take what they’ve heard to the dinner table and have a discussion,” he said. “That’s a dream of mine.”
Two examples have been coverage of the abortion debate in the wake of the Supreme Court’s reversal of Roe v. Wade, and the debate over gun rights. To vocal criticism from the left, he hired Stephen Gutowski, founder and editor of Reload, a firearms website. No one wants a school shooting, said Mr. Licht, whose hometown, Newtown, was the site of the Sandy Hook Elementary School massacre. “But we have to understand the culture of people who like guns,” he said.
“This is not vanilla, centrist or boring,” he added.
***Mr. Licht has barely begun to put his stamp on the network’s programming, but it’s already evident in the new morning show, “CNN This Morning.” Mr. Licht picked the hosts, persuading the left-leaning Don Lemon to trade his prime-time slot for early morning, and pairing him with the former Daily Caller reporter and CNN White House correspondent Kaitlan Collins and Poppy Harlow, a former host of “CNN Newsroom.” The show takes a somewhat similar approach to the one he used at “CBS This Morning” (which also shares a near-identical name).
In a series of interviews with The Times, Mr. Licht visibly came to life talking about “This Morning” and its co-hosts. “They obviously like each other,” he said. “The chemistry is great. I love the collaboration. Every day, it evolves. It’s not like me giving orders. It’s so much fun.”
“This Morning” debuted on Nov. 1. The New York Post (which shares ownership with CNN’s rival, Fox News) reported the next day that “‘CNN This Morning’ bombs in debut,” drawing just 387,000 viewers, far behind rival morning shows and trailing its predecessor on CNN, “New Day.” CNN called the instant critique “absurd and cheap” after just one day’s data. (Since then, the show has gained slightly among total viewers.)
More significantly, Mr. Licht noted, “This Morning” has broken news, including the chief Washington correspondent Jake Tapper’s scoop that Senator Kyrsten Sinema of Arizona was leaving the Democratic Party to become an Independent.
Prime time looms as an even greater challenge. In August, Mr. Licht moved Mr. Tapper from his 4 p.m. anchor position to the coveted 9 p.m. slot that had been vacated by Chris Cuomo after CNN fired him for what it deemed inappropriate efforts to help his brother, New York’s former governor, Andrew Cuomo, fend off the sexual harassment allegations that led to his resignation from office. The experiment with Mr. Tapper fared poorly in the ratings and lasted just one month.
Mr. Licht acknowledged that prime time remains an “open canvas.” He said he and his colleagues were meeting and “throwing things against the wall, looking at off-the-beaten path opportunities.” Among the names tossed out have been entertainment, comedy and sports figures. He declined to be more specific but promised surprises.
Miklos Sarvary, a professor and director of the media and technology program at Columbia Business School, said that entertainment was potentially more profitable than low-margin news. “But what does that do to the brand if you want to be the most trusted name in news?” he said. “News is supposed to be serious. I’m not sure that putting on a comedian is a great move for credibility.”
Mr. Licht said he understood Mr. Sarvary’s point, but said prime time offered “some leeway for being a little different.”
“It has to be compelling and entertaining without hurting the news brand,” he said, citing his former boss Mr. Colbert, and Mr. Stewart as “the kind of people who’d work,” while acknowledging that Mr. Stewart is already locked into a lucrative contract at Apple TV.
***Every Saturday, Mr. Licht sends Mr. Zaslav a memo with highlights of the week and programming and financial updates. Mr. Licht’s growth strategy is focused on CNN.com, which attracts more than 200 million unique visitors each month, according to CNN. But at its peak, CNN digital generated only about 10 percent of the network’s profits, Mr. Licht confirmed.
On Oct. 13, Mr. Licht made his debut in front of Warner Brother Discovery’s board at a hotel in Los Angeles, where he outlined both his growth and content strategy. Asked about his efforts to make CNN less partisan, Mr. Licht gave this analogy: Suppose it’s raining outside. CNN plans to have people on who love the rain, and it will have people on who say they don’t like the rain. But it won’t have anyone on who says it’s sunny out.
Mr. Licht said he used the analogy to make clear that a less-partisan CNN did not mean it was any less committed to truth. “This wasn’t to plot a new course but to assure people we would not let up one inch in being truth tellers,” he said. “The change is we will not do Trump 24/7 or let him dictate our agenda.”
By all accounts, Mr. Licht’s presentation was warmly received by directors, including Mr. Malone.
Mr. Licht’s vision is contending with industrywide pressures to cut costs. (He said he appreciates but doesn’t really believe Mr. Zaslav’s professed indifference to financial results.) By announcing the need for more layoffs on Oct. 26, he said he hoped to engage in a “transparent” process that would leave everyone feeling they’d been heard. But, he said, “it would be irresponsible not to do the tough work now.” He added, “I promise you CNN will be more profitable next year.”
However transparent, many in CNN’s rank and file felt blindsided by the cuts, especially after what they perceived as his earlier reassurances that no further layoffs would be needed. In a all-staff meeting in November, Mr. Licht said he stood by his earlier remark that there would be no merger-related layoffs, and “I absolutely would not have said something that I did not believe to be true.” But he said he understood how his remarks had hurt his credibility. “I have to win that credibility back,” he acknowledged.
Mr. Licht said the firings were the “low point” of his tenure so far.
At another all-staff meeting this month, aimed at restoring morale, Mr. Licht took questions and then ended with a passage he wrote himself:
In terms of morale, let me just say, you work at a world-renowned news organization alongside the best journalists on the globe. Your jobs have meaning. Your jobs have an impact. You are part of something bigger, of something with tremendous meaning. And nothing about that has changed. And you have in me as a leader, who has done a lot of your jobs, someone who has your back every step of the way. My loyalty is first and foremost to this organization and to journalism without fear or favor to anyone else, including our parent company.
That’s why I’m here. That’s why I took this job.
“I want CNN to be essential to society,” Mr. Licht said in one of our interviews. “If you’re essential then the revenue will follow.”
And if it doesn’t?
“Maybe it won’t work,” Mr. Licht conceded. “But I’d rather try to win this way.”
The post The Education of CNN’s Chris Licht appeared first on New York Times.
The Education of CNN’s Chris Licht – DNyuz |
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| From: Jon Koplik | 2/8/2023 12:41:18 PM | | | | | | WSJ -- Warner Bros. Discovery to Keep Discovery+, in Strategy Shift ..................................
Feb. 8, 2023
Warner Bros. Discovery to Keep Discovery+, in Strategy Shift
Decision reflects concerns that some Discovery+ subscribers might not want to move to pricier platform
By Jessica Toonkel and Joe Flint
Warner Bros. Discovery Inc. plans to keep Discovery+ as a stand-alone streaming service, people familiar with the matter said, a strategy shift for a company that had planned to consolidate content in a single subscription app.
The move comes as Warner Discovery is close to launching a new, yet-to-be named supersize streaming service amid increased competition and in an uncertain economic environment.
Company leaders have since adjusted that view, the people said.
The idea of building a one-stop shop for streaming was part of the appeal of merging AT&T Inc.’s WarnerMedia with Discovery Inc., the deal that created Warner Bros. Discovery last year. The company had said streamlining its offerings made sense for the company and for consumers, given how crowded the streaming marketplace has become.
Instead of combining HBO Max and Discovery+ in their entirety, the new platform will feature HBO Max content and most Discovery+ content, with Discovery+ remaining available as a stand-alone option, some of the people said.
The decision to keep Discovery+ is part of an effort to avoid risking losing a significant chunk of the app’s 20 million subscribers who might not want to pay the higher price to access that content, according to the people familiar with the matter.
The content that will be available on both Discovery+ and the new service includes Discovery Channel’s “Shark Week” and programs from Chip and Joanna Gaines’s “Magnolia Network,” into the new service that expands on what HBO Max has built, some of the people said.
Discovery+ without ads costs $6.99 a month and the ad-supported version costs $4.99. HBO Max, meanwhile, costs $15.99 a month without ads and $9.99 with ads. The coming streaming service will likely become more expensive than HBO Max, company executives have said. Discovery+ is profitable and has low operating costs, some of the people said.
Warner Bros. Discovery has said that it is looking to make sure it offers an array of streaming options for viewers at different price points.
To that end, the company is also planning to launch a free ad-supported streaming service this year in an effort to reach a broader audience as the competition for users intensifies. The coming free service will include a variety of streaming channels of programming including library content from the Warner Bros. studio, as well as shows that originally ran on HBO and Discovery outlets, said the people familiar with the situation.
Write to Jessica Toonkel at jessica.toonkel@wsj.com and Joe Flint at Joe.Flint@wsj.com
Copyright © 2023 Dow Jones & Company, Inc.
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| From: Jon Koplik | 2/24/2023 10:28:01 PM | | | | | | WSJ -- Warner Bros. Finds One Cash Flow Story to Rule Them All ...........................................
MARKETS
HEARD ON THE STREET
Feb. 24, 2023
Warner Bros. Finds One Cash Flow Story to Rule Them All
Media giant focuses on debt reduction amid advertising and streaming weakness -- and has a brighter year ahead
A scene from HBO’s ‘The Last of Us.’
By Dan Gallagher
Warner Bros. Discovery WBD at least knows who its fans are -- and how to play to them.
The media giant created from the ashes of AT&T’s ill-fated foray into Hollywood didn’t have a great fourth quarter. Results for the period reported late Thursday showed sharp declines in revenue from both advertising and content. That brought overall revenue for the period down 11% year over year to $11 billion, which also fell short of Wall Street’s estimates. The company saw little action in theaters during the quarter beyond the superhero flick “Black Adam,” which lagged behind expectations. And it didn’t exactly warm up the crowd at home either, adding only 1.1 million subscribers to its digital streaming services that include HBO Max.
The last point made Warner the weakest of its major streaming peers during the year-end quarter. Netflix added 7.7 million to its much larger and more mature subscriber base during the period, while media peers Paramount Global and Peacock-owner Comcast added 9.9 million and more than 5 million net new subscribers, respectively. Disney reported a drop of 2.4 million subscribers for its Disney+ service, but that was entirely due to declines in its Hotstar venture in India; core domestic and international subscribers to Disney+ grew by 1.4 million during the December quarter.
But Warner’s streaming results were also on brand for a company that was an early voice in calling for the end of the era where streamers chased subscribers at any cost. Discipline is necessary for a legacy media player shouldering nearly $50 billion in gross debt. But Warner is making progress on that front, and its cash management was a bright spot in the fourth quarter. Free cash flow of $2.5 billion came in 30% above Wall Street’s targets. That cheered the many analysts who are positive on the stock as a deleveraging story; twice as many have “buy” ratings on Warner as on Paramount. Credit Suisse analyst Doug Mitchelson called Warner “by far the most mispriced equity in our media coverage,” in a note to clients on Friday.
Such support helped Warner’s stock pick up some gains Friday morning following a weak opening. And the company has a brighter year ahead, with a more robust slate of theatrical movies in the pipeline. Even the first quarter is shaping up strong, with the hit new series “The Last of Us” garnering strong viewership on HBO, and the “Hogwarts Legacy” videogame from the “Harry Potter” franchise proving a surprise hit, having sold more than $850 million worth since its release earlier this month. The company also announced Thursday that it just signed a deal to make “multiple Lord of the Rings movies,” though no release dates were shared. If all goes well, a lot more of its debt will have disappeared by then.
Write to Dan Gallagher at dan.gallagher@wsj.com
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| From: Glenn Petersen | 5/5/2023 8:16:26 AM | | | | | | Warner Bros. Discovery reports big overall loss even as streaming turns a profit
PUBLISHED FRI, MAY 5 20237:14 AM EDT
Alex Sherman @SHERMAN4949
CNBC.com
KEY POINTS
-- Warner Bros. Discovery reported quarterly revenue in line with estimates.
-- The company posted a big loss, despite its streaming business turning a profit of $50 million for the quarter.
-- Warner Bros. Discovery expects the streaming business to be profitable this year, earlier than expected.
Warner Bros. Discovery reported a big quarterly loss even as its direct-to-consumer segment turned a profit for the first time ever.
The company also expects the DTC, or streaming, business to be profitable for 2023, a year ahead of its expectations, CEO David Zaslav said in an earnings release Friday morning.
First-quarter revenue was $10.7 billion, roughly in line with analysts’ estimates. The company reported a net loss of $1.1 billion and adjusted EBITDA of $2.6 billion.
Here’s what the company reported, vs. what analysts’ estimates, according to Refinitiv:
Revenue: $10.7 billion vs. $10.78 billion expected
Loss per share: 44 cents vs. earnings of 1 cent expected
Like all major media companies, Warner Bros. Discovery is pivoting to streaming video as millions of Americans cancel traditional pay TV each year. The company ended the quarter with 97.6 million streaming subscribers, up 1.6 million from last quarter.
The direct-to-consumer segment turned a profit of $50 million for the quarter.
Warner Bros. Discovery is adding Discovery+ content to HBO Max and relaunching the service as Max in the U.S. later this month. Zaslav had previously promised its streaming business will be break even by 2024 and profitable by 2025. Zaslav has aggressively cut back on content spending, including eliminating shows and movies from Max, to jumpstart efforts to make the business profitable.
Warner Bros. Discovery lost $930 million in free cash flow in the quarter, largely due to interest rate and sports media rights payments,
The company ended the fourth quarter with $49.5 billion in debt on its balance sheet, and $2.6 billion in cash on hand. Warner Bros. Discovery is attempting to boost free cash flow by cutting back on spending, including laying off thousands of employees last year, to reduce its hefty debt load.
This is a developing story. Check back for updates.
Warner Bros Discovery (WBD) earnings report 1Q23 (cnbc.com) |
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