Why Warner boss Zaslav is having to split up the media empire he built
Warner Bros. Discovery Chief Executive David Zaslav loves the 1941 Humphrey Bogart classic 'The Maltese Falcon" about a group of unsavory characters searching for an elusive statuette of a gold jewel-encrusted falcon.
The falcon is 'the stuff dreams are made of," Bogart's character famously says, driving people to do just about anything to possess it. Combining Warner with Discovery was Zaslav's Maltese falcon. And like the movie's protagonists, Zaslav couldn't secure it.
His old world entertainment titan's ambition collided with the realities of a media business in turmoil. Now, three years after he closed on a deal that merged his Discovery cable TV networks with AT&T's WarnerMedia business, Zaslav is breaking it into two separate companies.
The CEO, who has enjoyed industry-topping paydays throughout the tumultuous three-year marriage, will sit atop the company home to Warner movie and television studios and HBO Max streaming service. The second will consist primarily of cable channels such as CNN, TNT and Food Network, and own a 20% stake in the other.
'We now have healthier, sturdier businesses that can be separated and grow and soar," Zaslav said in an interview.
Accelerated cord-cutting, streaming's ascendance, Hollywood labor strikes and AI's rapid development reshaped the media and entertainment industries while the merged company grappled with a hefty debt load and deep cost cuts. But the company was also plagued by Zaslav's own bad bets and missteps.
The biggest problem: Zaslav took on more than $50 billion in debt to do the deal.
The company couldn't shoulder a sum that large. To pay it off, Zaslav cut $5 billion in costs. Warner laid off thousands of workers. It scrapped high-profile movies and canceled television shows and the CNN+ streaming service.
The belt-tightening hurt the company's ability to compete and grow. Morale sank. Workers were especially angry with Zaslav's opulent lifestyle and $140 million in compensation over the last three years.
'The merger of the companies was ill advised because of the massive debt it took to make it happen, and because the brands never fit together as neatly as advertised," said Paul Verna, Emarketer's vice president of content. Ultimately, Zaslav's 'only option was to undo much of what he engineered with the merger of Discovery and Warner Media."
Warner's fortunes sank. Last year, it took a $9.1 billion write-down on the value of its cable networks. Wall Street soured. Since the company's creation in 2022, the stock has lost 60% of its value. Under pressure from an activist, the company earlier this year added a private-equity veteran to its board.
A protégé of the late Jack Welch, who ran General Electric when it owned NBC, Zaslav got his start as a lawyer at the conglomerate making deals for its cable networks. He helped launch CNBC and MSNBC and quickly rose in the industry.
After taking the helm of Discovery in 2006, Zaslav doubled down on low-cost reality shows, rather than the low-rated educational fare the company was built on, boosting ratings and revenue as well as expanding globally.
He also laid off 20% of the staff.
Zaslav built Discovery through acquisitions, culminating with the 2018 $12 billion deal to buy Scripps Networks and its channels including Food Network and HGTV.
Yet he feared Discovery was too small—and wanted movie and television studios to help build a global streaming service for the new era of television. When AT&T was looking to unload WarnerMedia, he pounced.
The deal went through a lengthy regulatory process. When the companies combined, Warner staffers hoped Zaslav would put an end to AT&T's restructuring.
Yet more and more consumers were cutting the cord, hurting cable viewership and sinking ad revenue. The pandemic wreaked havoc on production, then was followed by strikes.
Zaslav lost support inside and outside Warner. Hollywood jeered his gutting of much of the staff of the Turner Classic Movies network, which industry officials view as a sacred cow. The decisions to cancel the movie 'Batgirl" and other projects were also unpopular. Company insiders noted that Zaslav and his lieutenants talked about investing in the future, but killed off forward-looking, albeit expensive, projects such as the CNN+ streaming service.
Warner also initially struggled to execute its vision for its 'Max" streaming service. Launched in 2023, executives touted the appeal of the service's breadth of offerings, from prestige TV in HBO to Harry Potter films and TV from Discovery networks including HGTV, Food Network and TLC.
But after trying to catch up to larger rivals like Netflix, executives realized they should focus more on distinct content than being everything to everyone, and take better advantage of the HBO brand. It was renamed 'HBO Max" earlier this year.
The streaming business boosted its adjusted earnings before interest, taxes, depreciation and amortization to $677 million last year from $103 million a year earlier. The company projects it will rise to $1.3 billion for the current year.
Then there was the National Basketball Association, a reliable source of viewership, which called Warner's TNT network home for more than three decades. The league grew irritated after Zaslav said at an industry conference in late 2022 that the company didn't 'have to have the NBA."
Negotiations were difficult. Ultimately, the NBA signed a new deal with Disney's ESPN and brought in NBCUniversal and Amazon Prime Video as new partners.
Some Warner staff grew disenchanted with Zaslav's leadership. Early on, he challenged executives over greenlighting a Clint Eastwood-directed movie that was a box office disappointment. 'Alto Knights," a mob movie starring Robert De Niro and written by his Hamptons neighbor and 'Goodfellas" scribe Nicholas Pileggi that Zaslav championed, was a commercial and critical flop.
A chunk of the CEO's compensation is based on free cash flow, which soared as the company cut costs. Many division heads, in particular, chafed at having to rein in production and marketing budgets to help pay down the debt and increase free cash flow.
Warner employees grimaced at the optics of Zaslav sitting courtside at New York Knicks and Los Angeles Lakers games, next to pals such as John McEnroe, David Geffen and Dustin Hoffman while staff lost their jobs.
Some of Zaslav's strategic moves might pay off in the long run. Keeping the NBA would have meant more than doubling the $1.2 billion average annual rights fees TNT was paying, money it has since used for other sports rights.
Despite losing the NBA, Warner was able to negotiate new long-term distribution agreements for TNT and its other cable networks at increased fees with big cable operators Comcast and Charter. That will help position the cable networks company for the future.
After a tough start to the year, the Warner movie studio is on a hot streak as of late thanks to hits 'Sinners" and 'Minecraft." The company is also releasing a much-anticipated new 'Superman" movie this summer.
The company's debt has been cut by $19 billion, and most of the remaining $34 billion will sit on the global networks company, led by Warner's current finance chief Gunnar Wiedenfels.
The global networks company could benefit from the cash-generating channels, but a good chunk of that ad revenue will go to paying down debt. The studio and streaming company, meantime, could prosper from hits such as HBO's 'The Last of Us" and box office successes, and if HBO Max keeps adding subscribers.
Yet most industry officials and analysts expect Zaslav's endgame is for each to be acquired.
Write to Joe Flint at Joe.Flint@wsj.com
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