Talk to people at Warner Bros. or HBO these days and invariably they’ll ask: So… what are you hearing from Discovery? And vice versa: What’s the buzz at Warners? There’s a reason for that, of course. As AT&T’s $43 billion punt of WarnerMedia to Discovery sails toward a possible closing date in mid-2022, everyone—top to bottom, but especially at the top—is looking for an angle.
It’s easy to see why. A merger of two complementary media behemoths under Discovery C.E.O. David Zaslav will necessarily produce winners and losers, elevated leaders and discarded also-rans, new priorities and tossed-off strategies. Thanks to regulatory rules, the two sides aren’t allowed to discuss non-public details of their respective businesses with each other. The result—like in many combinations of this scope, but exacerbated because these are all Hollywood people—has been a prolonged game of bicoastal Telephone where even the top executives in New York, Silver Spring, and Burbank are communicating through conduits, talking to everyone about their future colleagues. Everyone, bizarrely, except each other.
It’s not that Zaslav hasn’t been feeling out the WarnerMedia people. He’s actually done multiple sit-downs with outgoing C.E.O. Jason Kilar’s direct reports, including news and sports leader (and old Zaz pal) Jeff Zucker and studios and networks boss Ann Sarnoff; and, over the past few weeks, her direct reports, including HBO’s Casey Bloys, Warners film chief Toby Emmerich and TV leader Channing Dungey. Zaslav sat next to Sarnoff at the big Succession premiere last month in New York—an event, incidentally, that AT&T C.E.O. John Stankey was slated to attend but pulled out of at the last minute. For Stankey, the end of his disastrous media foray can’t come soon enough (though AT&T shareholders will still own shares of the new entity).
Those Zaslav meetings have just been general get-to-know-you chats, I’m told, and at least one person I spoke to about the sit-down couldn’t exactly get a read on his intentions. That’s by design, and people at WarnerMedia nonetheless seem cautiously excited about a leader who doesn’t work at a phone company, but the lack of specific communication has left an information void that has been filled by the usual odd gossip and power moves. Endeavor’s Ari Emanuel and CAA’s Bryan Lourd seem to be jockeying to position themselves as Zaslav’s consigliere in Los Angeles, hosting parties to better acquaint the media C.E.O. most associated with cheap reality shlock and D.I.Y. programming with the real talent that fuels the Warner businesses. Lourd’s private dinner at his Beverly Hills home last week drew Warren Beatty, Chris Hemsworth, Greg Berlanti, the Russo brothers, Legendary’s Mary Parent, Taika Waititi, Netflix’s Tendo Nagenda, Paul Thomas Anderson, Alejandro Inarritu, and Sean Penn—but, interestingly, no Warners executives. The party went late.
Despite having never spent time on a studio lot until recently, Zaslav is apparently getting good at the Hollywood thing, holing up in a rear patio booth at the Polo Lounge, staying current on Warner movies and shows (recent faves: HBO’s Succession, of course, and Max’s The Other Two), and declaring that he’ll be an out-and-about presence in L.A. like he’s been in New York and the Hamptons. Zaslav spent his career building relatively unsexy television businesses on the periphery of traditional Hollywood, so now he kinda feels like the chubby small-town kid who goes off to college, gets totally jacked, and moves to the big city to date the girls who never took him seriously back home. (To the extent that one of the best-paid C.E.O.s in media, or any other business, can be said to have been second-tier.)
He seems to know that for all the issues that WarnerMedia faces—the slow start in streaming, the cumbersome debt, the cuts and brain drain under AT&T—refashioning his image as a talent-friendly kingmaker is crucial, especially since he is known at Discovery for ruthless margin-driving and, at times, for financially squeezing producers. That’s not the persona he’s presenting in these talent dinners, to be sure.
No, I don’t know who’s getting fired, promoted, sidelined, brought in, kicked off the lot, or sacrificed by Zaslav in a ritual ceremony in the Friends fountain. I could make informed guesses—HBO’s Bloys is certainly on Zaz’s must-keep list, for instance, and I seriously doubt Warner Bros. Discovery spins off CNN, at least not at first—but that doesn’t help anyone. What I do know is that the transition, once approved, will be swift, and the core Zaz team will be assembled quickly and ready to move.
He basically said so yesterday on Discovery’s earnings call, boasting that they are crafting a “go to market plan” for streaming (pending some numbers they need from the inside), and revealing a new advisor in Kevin Mayer—yes, the same Kevin Mayer who is already busy as chairman of sports platform DAZN, proprietor of multiple SPACs, and spender of billions of Blackstone’s dollars on Reese Witherspoon and CoComelon. That guy has more jobs than everyone in the old “Hey Mon” skits on In Living Color.
The involvement of Mayer, an architect of Disney’s streaming strategy, suggests Zaslav’s first priority is figuring out how to best deploy the Discovery and Warner assets into either separate, stand-alone streaming services or, more likely, a combined, supersized HBO Max—or whatever it ends up being called. They could stay the course and try to fix the name confusion with better marketing. But HBO shouldn’t be in the name, in my opinion; HBO should be a tile within a larger, global service dubbed WarnerMax or Max+ or just Max, alongside tiles for Discovery, CNN+, DC Comics, Turner Sports, Food Network and other sub brands, similar to Disney+. Hammer Netflix with franchises, HBO quality, sports and news—the stuff Netflix either doesn’t have or isn’t great at. And don’t confuse the full offering with HBO, which has an amazing brand but turns off a segment of the general population not looking for “elevated” shows.
CNN, for instance, is a huge brand, especially internationally, that Zaslav believes can be transitioned successfully to streaming, even though he knows it is tainted by politically polarized (and rapidly declining) audiences in the U.S. To that end, I’m told Zucker recently offered MSNBC star Rachel Maddow around $20 million a year to anchor the soon-to-launch CNN+ service, which then caused NBC Universal to scramble to promise her more money and less work to stay put, which she did. (A CNN rep confirmed Zucker tried to get Maddow specifically for CNN+ but not the price.) A big, exclusive talent play to establish CNN+ seems like a no-brainer.
All those branded Warner Bros. Discovery tiles, the thinking goes, can then be included in one Max price (less for ads) or sold as add-ons, similar to the Disney “bundle” of D+, Hulu and ESPN+. Zaslav told investors yesterday that fewer than half of Discovery+ subscribers in the U.S. are also believed to be HBO Max customers, “which with the right packaging provides a real opportunity to broaden the base of our combined offering.” Sounds like a bundle to me, but nothing’s been decided, the company says.
What Zaslav didn’t talk much about with investors is the Discovery stock price, which closed at $35.65 per share on May 14, the day before the announcement of the WarnerMedia transaction, and stood at $25.46 per share today. That’s a steep 30 percent drop, suggesting investors are nervous about the deal. Maybe, but stock skids also aren’t uncommon in situations like this, where Zaslav has been unable to provide much detail about his outlook and strategy, beyond his declaration yesterday that the combined company will launch with less debt than anticipated. A proxy is expected to be filed with more information later this month, and AT&T hasn’t said yet whether it will spin or split its stake, another variable that will impact the share price. In other words, there’s no rush for investors to buy now.
Perhaps more concerning for Zaslav is whether the Biden administration will piss all over his victory parade. Most analysts have brushed off antitrust concerns, especially since Trump’s Justice Department sued and lost its effort to block the purchase of these same assets by AT&T, a much bigger company than Discovery. But the suit filed this week to stop book publisher Penguin-Random House’s acquisition of ViacomCBS’s Simon & Schuster division likely caused Zaslav to sweat through one of his vests and immediately summon his antitrust lawyers.
Why? First, it signals the expected activist stance on mergers by the Biden D.O.J. and F.T.C., both of which have aggressive antitrust enforcers in Jonathan Kanter and Lina Khan, respectively. Second, the new suit focuses not on the impact of the merger on consumers, a traditional concern of antitrust law, but rather on the winnowing of the market for authors, especially top writers who benefit from bidding wars. That’s big. “Post-merger, the two largest publishers would collectively control more than two-thirds of this market, leaving hundreds of authors with fewer alternatives and less leverage,” the D.O.J. said. Stephen King, one of Simon & Schuster’s most popular writers, said he was “delighted” by the lawsuit.
Sure, the books business, dominated by the “big five” publishers, is very different from the less consolidated filmed entertainment business, and it seems almost silly to say artists are suffering from a lack of choices when the streaming wars have supercharged demand for premium content. Plus, entertainment is increasingly the playground of gigantic tech players like Apple, Amazon and Netflix, so why shouldn’t Discovery and WarnerMedia combine to compete?
But the D.O.J.’s focus on talent marks a significant shift that carries potentially huge implications for media deals that reduce the number of buyers. After all, top authors aren’t too different than expensive filmmakers—the D.O.J. suit might as well have been talking about Chris Nolan or Shonda Rhimes; Stephen King is a huge player in books and film and TV. Take Amazon devouring MGM, or even Discovery combining with WarnerMedia, both of which would eliminate bidders for projects. The “big five” of publishing sounds a lot like the “big four” of talent agencies, which means CAA acquiring ICM could be seen as problematic for artist choice. (Think talent agencies are too small to warrant government interest? Remember, regulators sniffed around but ultimately did nothing when Variety and Deadline owner Jay Penske bought The Hollywood Reporter, giving him a near-monopoly in the relatively tiny market of entertainment trade publications.) “This demonstrates that the D.O.J. is going to test new theories in cases that focus on older industries,” Taylor Owings, a former department antitrust lawyer, told the Journal. What could be a better testing ground than old media?
Even if a D.O.J. or F.T.C. challenge fails, holding up the Discovery deal could inflict major damage. AT&T blamed the nearly two-year delay in that transaction for WarnerMedia falling further behind Netflix and Disney in the race for global streaming supremacy. Who knows where all these streaming competitors will be in another two years?
But that’s a worst-case scenario for Zaslav, who, through his own preparation and the urgency of the streaming market, will be ready to go full-speed on Day One. I’m not sure people at WarnerMedia, who have now endured years of uncertainty and chaotic management, can take two more years of limbo under the phone company. No wonder everyone is playing their own version of Telephone.