Let’s call 2022 the year of the write-off. Or maybe the year that most entertainment people would like to write off. Or, if we’re really being honest, it was the year that Hollywood itself was written-off—and not like when a TV star bails on a hit because he thinks he’s a movie star.
We don’t need to rehash the awfulness of 2022 in this space. Suffice to say the Roaring 2010s finally ended, media companies lost a combined $500 billion in value, per the Financial Times, layoffs and cutbacks ensued, everyone freaked out, and a pall of anxiety and confusion took hold. “A perfect storm of bad news,” the analyst Michael Nathanson said. “I’ve been covering this sector a long time and I’ve never seen such a bad collection of data points before.” Happy holidays.
Against that backdrop, Netflix all-of-a-sudden discovered that advertising was cool and fun, and Disney panic-swapped its Bobs. But I think we can all agree that no company represented the industry’s perilous state more than Warner Bros. Discovery,—a mashed-together content Frankenstein born of AT&T desperation and investor John Malone’s fear that Discovery wasn’t big enough to transition from cable to streaming. Launched in April (yes, it’s only been eight months) and saddled with more than $50 billion in debt, its C.E.O. David Zaslav may have moved into Robert Evans’ house and sat behind Jack Warner’s desk, but he arrived in Burbank with a mandate to cut $3 billion and cut fast. To Zaz’s credit, he was never coy about that.
Layoffs, yes; thousands of them in a slow-moving mass execution. Synergies and redundancies everywhere. Reduced content spends, almost certainly. That was all expected, but there was an added element of indignity that few in Hollywood saw coming: the abrupt scrapping of films and shows that had already been greenlit. Some of them after they were finished. And nobody at WBD better personified that controversial strategy than Gunnar Wiedenfels, the company’s genial chief financial officer, whose moves managed to turn Warner Bros. and HBO, two of the industry’s premier brands, into objects of scorn and suspicion in the creative community.
This isn’t necessarily a knock on Wiedenfels; calling the machete-wielding C.F.O. of an over-levered company a “villain” for Hollywood people is somewhat akin to saying he’s doing his job. Arguably, Zaslav is more villainous here, given he’s Gunnar’s boss. Or John Stankey and Jason Kilar, the AT&T braintrust whose decisions created many of the problems that are necessitating all these cuts. Or Malone, whose willingness to give up his controlling shares in Discovery enabled the WBD transaction in the first place. Or maybe this is all, just as Zaz has said, the tough love that the company needs for long-term health. We’ll see.
But like it or not (I think he likes it), Gunnar has become the face of the cuts and content shrinkage both at his company and even industrywide, thanks to his public role defending the Warner Discovery strategy at investor events, including at the Citi conference on Jan. 5. He’s Public Enemy No. 1 to creative people, and a potential hero to those watching the increasingly troubled bottom line. “Gunnar is probably one of the best C.F.O.s that I’ve seen in my career,” the analyst Jessica Reif Ehrlich said in September. “He’s very detail oriented, he does the work, takes the time and goes over all the details.”
OK… but his more aggressive moves have created reputational consequences for the company and its brands that may linger beyond the annual spreadsheets. They also just feel shitty, in an industry where the perception of shittiness can be the difference between landing the next big hit or seeing it go to a rival. The headlines fly every couple days, so we’ve kinda become numb to it all. But Wiedenfels executed an $825 million write-down in content during his first quarter in the gig, including a $496 million “impairment” on content. That meant stuff that was already made or in production, like CNN+ and those shows at the Turner networks that were shooting one day and then not shooting the next. Hell, even the SAG Awards got kicked to the curb. The SAG Awards!
And that was before the Batgirl bombshell, where, as part of $2 billion in third-quarter cuts, Warners—say it with me again— killed a nearly-finished DC film for a $90 million write-off. The Scoob! sequel, too. I know there’s a long history of busted TV pilots, so many insiders dismissed the outrage as pearl-clutching over creative misfires. But these were nearly finished studio films, scrapped for strategic rather than creative reasons, which felt like a total repudiation of the compact between creators and studios: We may screw you before, during and after you make this art for us, it’s always been, but you WILL be allowed to make the art.
Maybe the damage has been minimal. If you ask Mike De Luca or Pam Abdy or Channing Dungey at Warner Bros., or Casey Bloys at HBO, or even Chris Licht at CNN, who ended his entire original programming division with Wiedenfels’ help, they’ll insist they’ve seen no drop off in top-tier talent wanting to work for them. “We have healthy relationships with talent,” Wiedenfels insisted at a conference in September. “And we are offering one of the best platforms for anyone in the creative space.”
True. But it’s also clear that, at least this year, the talent community is looking at the WBD divisions a little differently. Wiedenfels’ strategy led to scenes of frantic desperation, like when filmmakers Bilall Fallah and Adil El Arbi attempted to salvage Batgirl footage on their phones before discovering Warners had already deleted it. Or the Scoob! team arranging secret private screenings, just so they could share what they created with someone. Not what Zaz wants when he’s spending millions to promote the 100th anniversary of the studio with the tagline “Celebrating Every Story.” Every story except, I guess, the stories that are more efficiently written off.
WBD clearly didn’t anticipate the Batgirl backlash, and Wiedenfels didn’t seem to particularly care if its talent partners were pissed, dismissing the outrage as a media creation. “I don’t think it is unusual,” he said of the write-offs in September. “We are a creative industry, and one of the elements of creativity is that there is judgment and views on what the potential of what a certain piece of I.P. might be.” Okay, fine, but again, those judgments are usually made before the I.P. is turned into a movie. And the judgments usually don’t include a nuclear option.
That was only the beginning, of course. The most recent S.E.C. filing this month, as the ad market is weakening and Gunnar’s EBITDA guidance has declined, revealed the write-offs could total up to $3.5 billion, with HBO killing its sex dramedy Minx during production of its second season and scrapping another show, The Nevers. No, these aren’t highly watched series, and Zaz has said he wants to cut fat so he can focus on stuff that does move the needle. Great. But if there isn’t a big audience, don’t say you want to make them and then not make them. And if the decisions to make them predate you, just suck it up and find the money to do right by your creators. Maybe instead scrap that planned three-part vanity documentary on the history of Warner Bros. that Zaz commissioned for the 100th anniversary, along with a pricey “Candlelight Concert Series” across 100 cities, which nobody asked for. Boom, two easy cuts.
We can debate the overall financial strategy here. I actually think it’s smart to pull shows off HBO Max and monetize them elsewhere, a tactic that has been part of the television business since the dawn of syndication. The days of media companies allowing old content to languish on a service are over; cash flow trumps streaming subscribers, and it’s pretty clear people aren’t signing up for the old stuff, anyway—or at least not for all of the old stuff. Zaz, Gunnar and the team were handed a disaster, so squeezing money out of their assets is a no-brainer. They like to say the situation is a lot worse than they envisioned, a common tactic when taking over a business. But they’re not wrong. The company has lost nearly two thirds of its value since the merger consummated, and it warned its restructuring and other charges could total $5.3 billion. Cash is now king.
Plus, they argue, the tax code allows this aggressive write-off maneuver only during the first year after a change of ownership, so this was a short-term move, not a long-term shift in how Warner Discovery sees its relationship to artists. Maybe so. Hopefully so. And while the cuts and write-downs haven’t impacted the other Hollywood companies in the same way yet, they are likely coming in 2023. Disney under Bob Iger hasn’t done the heavy lift yet. NBCUniversal is already telegraphing big cuts. So are others. But at least for 2022, the Zaslav story at Warner Bros. Discovery has been the story of tough choices, reductions, and write-downs, and at least for now, Gunnar is the villain of that narrative.