Zaz & the Art of Investor Maintenance

David Zaslav
Photo: Drew Angerer/Getty Images
Dylan Byers
August 5, 2022

“I don’t really care what the number is,” David Zaslav said on his highly anticipated earnings call earlier this week. The now-embattled-ish Warner Bros. Discovery chief was referring to subscriber numbers for what will soon be, as has long been rumored, a unified HBO Max-Discovery+ streaming service (official name T.B.D.). A year ago, such a statement uttered from the lips of a Hollywood executive would have been blasphemous as Disney and then WarnerMedia and even Paramount+ vied to compete in the subscriber-measuring contest that Netflix routinized for Wall Street. Analysts’ obsession with Netflix, in particular, and top line subscriber growth, in general, had turned the metric into the holy grail. In fact, WBD had put forward a target—130 million by 2025—but Zaz, in a rather dispassionate and cold-hearted fashion, seemed to be disregarding it in order to get back to brass tacks: “We are not in the business of trying to pick up every sub,” he said. “We want to make sure we get paid.”

The number Zaz does care about is EBITDA, which he described as “our financial North Star.” He and his longtime deputy, J.B. Perrette, now hope to see their streaming segment break even in 2024 and generate $1 billion in EBITDA by 2025. “The number on the corner of J.B.’s desk and mine is the breakeven and the $1 billion,” Zaz reiterated later in the call. This is presumably the right note to signal to investors and analysts, who are indeed most interested in knowing how the company intends to get out of the red and push the share price back up. Zaz said all the right things on Thursday, even if he reforecast downward the company’s projected 2023 EBITDA to $12 billion. But setting a target and establishing a coherent strategy for achieving it are, of course, two different things. WBD’s long-anemic stock fell another 17 percent on Friday.

The challenge for Zaz & Co., current and former Hollywood executives told me in the wake of the earnings call, is that there are really only two ways for WBD to get to profitability, and they may end up being in direct conflict with one another. The first is cutting costs, which is something Zaz and his C.F.O. hatchet man Gunnar Wiedenfels do very well, and have done mercilessly and aggressively since taking over the new company. On Friday, WBD disclosed an $825 million writedown on content they’ve axed since the merger. And that doesn’t include this week’s shocking and controversial decision to kill off the $90 million, straight-to-streaming DC flick Batgirl, which my colleague Matt Belloni wrote about insightfully this week. (If Disney C.E.O. Bob Chapek scrapped a nearly-finished Marvel film, Matt notes, he’d “be beaten to a pulp by crazed fans with Thor hammers.” Perhaps it’s less surprising when it comes from a cable guy.)

The second path is via the traditional hard work of actually creating hits—films, shows, franchises, et cetera—which, of course, rely on creative talent and, in Zaz’s words, “attracting the best storytellers,” who don’t come cheap or think inexpensively. On the streaming side, Zaz has a built-in advantage with HBO, which remains synonymous with prestige television under its leader Casey Bloys. (“Quality is what matters, quality is what Casey and that team is delivering,” Zaz said on the call. “It’s the best team in the business.”) On the cinematic side, his decision to hire Disney alum Alan Horn similarly signals a talent-friendly posture. With Horn’s help, WBD is now embarking on a 10-year, Disney-style plan to Marvel-ize the DC Extended Universe.

Presumably, these two strategies—cutting costs and growing topline revenue—can coexist, but only if the former doesn’t get in the way of the latter. Meanwhile, the risk inherent in Zaz’s merciless cost-cutting approach is that he’s scaring the shit out of the creative industry. In order to Marvel-ize DC, for instance, you need a Kevin Feige-level leader. In the wake of the Batgirl fiasco, the Marvel leader himself emailed the film’s directors to offer his condolences over the “disappointing news” and to tell them he was “very proud of you guys and all the amazing work you do”—thus throwing into sharp relief just how insensitive Zaz had been in his handling of the matter, and providing some early indications of how Disney intends to wage a talent-friendly hearts-and-minds land war with Warners. 

The other, existential challenge for Zaz & Co., is that they’re trying to do all of this while keeping one foot in the door of the dying linear business. “We’re big believers in the linear business,” Zaz said during the investor call, citing the enduring power of live sports and news. Linear was “a very significant cash generator for us,” and would be “a very good business for us for many, many years to come.” I noted earlier this week how CNN C.E.O. Chris Licht seems to be ostensibly operating the network along the lines of a profitability-maximizing do-more-with-less strategy, which coheres with the Zaz edict. 

This is hardly reassuring to investors, who have likely noted, as media analyst Rich Greenfield did this week, that cord-cutting is accelerating at a record clip to the point where it is outpacing affiliate revenue; advertising revenue is poised for decline; and, thanks in part to Apple and Amazon, the cost for live sports rights are being driven to levels that are untenable for legacy media companies. With all these headwinds, Greenfield now anticipates that the cable industry is likely to experience its “first ever industry-wide revenue decline.” Meanwhile, their streaming services are “losing billions annually… with no line of sight to making money.”

One critique of Zaslav’s pseudo-predecessor, the WarnerMedia chief Jason Kilar, was that he had moved far too quickly in trying to position the company for an all-streaming future. The modern media business is all about planning for the future while optimizing the present, which Disney did elegantly under Bob Iger for years, and Kilar, as is his disposition, may have jumped the gun. The recent Netflix correction and skepticism about the true size of streaming’s total addressable market certainly suggest that he was moving faster than the consumers he was trying to serve. Nevertheless, Zaz’s posture of straddling the past and future will be problematic for its own reasons, and weigh heavily on the stock. Say what you will about Kilar, he was at least directionally correct.

There may be one other detail emanating from Thursday’s call, and one that I’ve been speculating and writing about for some time: In a media environment consumed by superscale, Zaz may not be done building. For all its size and scope, and projected EBITDA, WBD is still a minnow amid sharks: its depressed $35 billion market cap (which will increase as Wall Street sees the synergies come through, to be sure) pales in comparison to Disney ($195 billion) and Netflix (an even $100 billion, and likely trading at a discount) and is couch cushion change for Apple and Amazon. This week, my Puck partner Bill Cohan talked to cable legend Tom Rogers, who wondered aloud about a future WBD-NBCU combination one day. It’s enough to make one wonder. After all, for all Zaz’s focus on making his company leaner and meaner, he’d likely also be the first to admit that it’s got to be bigger, too.