David Zaslav defends Warner Bros. Discovery cuts

David Zaslav, chief executive of Warner Bros. Discovery, addressed the significant cuts the company has made over the past six months, calling them part of a fundamental “rethinking and rethinking” of how the media giant operates as the entertainment industry sees a going through a phase of dramatic change.

Since WarnerMedia and Discovery Inc. merged in April, the merged company has shed hundreds of jobs from entities including Warner Bros. Television, HBO and HBO Max, and Turner Networks. CNN boss Chris Licht recently told employees to brace themselves for budget cuts, and the news network has backed out of commissioning original films and series. The company has mothballed projects like Batgirl and dropped shows like HBO Max’s Sesame Street, raising concerns among directors, writers, and producers.

But Zaslav spoke bluntly to analysts on Thursday and made no apologies for such cuts.

“Let me get that straight,” Zaslav said. “We didn’t get rid of a show that helped us.”

Zaslav signaled to investors that bigger changes are yet to come. He said the company has increased its synergy target to $3.5 billion in savings, a 17% increase from the $3 billion he previously promised Wall Street.

“This is more than just a dollar balance of what we saved on an expense position,” Zaslav said while speaking to analysts. “It’s more than just a number. We are rethinking and fundamentally rethinking how this organization is structured. And we empower our business leaders to transform their organizations with an empowered mindset and an eye for quality and accountability.”

The cuts come as Warner Bros. Discovery seeks to reduce its $50 billion post-merger debt burden and faces a challenging economic environment with inflation and a possible recession spooking advertisers on top of long-term challenges like the demise of the traditional television and the uncertainty at the box office.

The company is adapting by creating a combined streaming service of HBO Max and Discovery+, which it now expects to launch in the spring, rather than the summer as previously forecast. It’s also working on a free, ad-supported service similar to Fox Corp’s Tubi.

At the same time, Warner Bros. Discovery is trying to spice up its franchises like DC. Zaslav has made no secret of his belief that DC can do better, noting that the studio hasn’t released a standalone Superman film in years. He also wants more to be done with the Harry Potter property.

Filmmaker James Gunn and producer Peter Safran were recently signed to oversee DC Studios to develop a more unified strategy across film, television and animation.

“They have a strong vision and blueprint that will drive a more unified creative approach that will allow us to realize the full value of one of the world’s most recognized franchises, their hardest work to date,” said Zaslav.

The merger has proved difficult and costly. Warner Bros. Discovery reported a loss of $2.31 billion in the third quarter, primarily due to costs related to Discovery’s acquisition and restructuring of WarnerMedia assets. Revenue fell 11% from the year-ago quarter to $9.82 billion.

Zaslav gave the challenges a positive note.

“This is an opportunity to look inside each of our companies and really see what’s working and what’s not,” Zaslav said. “Is it structured properly? Does it have the right assets, people and resources to be effective and best-in-class in the environment we face today? None of this is easy, and nothing happens overnight.”

Warner Bros. Discovery had a combined 94.9 million streaming subscribers at the end of the third quarter, including HBO Max and Discovery+, up from 2.8 million three months earlier, thanks to shows like HBO’s House of the Dragon. But despite acclaimed content, Warner Bros. Discovery’s streaming business lags behind Netflix (223 million) and Disney+ (152 million).

While streaming is a key business, Zaslav has pledged to fight back at all costs against the strategy of increasing subscriptions. He has stated that he is focused on the bottom line, for example through a renewed willingness to license shows to other companies and an outright rejection of direct-to-stream movies.

“Let’s be honest,” he said. “The strategy of folding all the windows, starving linearly [television] and theatrical [box office] and spending lavishly while making a fraction of it, all in the service of growing undernumbers, has ultimately proved, in our view, deeply flawed.”

Zaslav has been outspoken when it comes to what he thinks works and doesn’t work in streaming, especially in film. Analysts have interpreted his moves as a rejection of the strategy of AT&T, the former owner of WarnerMedia.

“The movies we’ve launched in theaters are doing significantly better, and launching a two-hour or an hour and 40-minute film straight to stream has almost nothing on HBO Max in terms of viewership, retention, or love of service brought,” he said.

The company’s shares closed at $11.97, down 6%, or 71 cents. The stock fell 4% in after-hours trading.

https://www.latimes.com/entertainment-arts/business/story/2022-11-03/david-zaslav-on-warner-bros-discovery-cuts-we-are-fundamentally-rethinking-the-company David Zaslav defends Warner Bros. Discovery cuts

Sarah Ridley

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