Every time the stock market does one of those uncomfortably big corrections downward, like pretty much all this year, people of a certain age look nervously at their suddenly devalued assets and repeatedly calculate whether they have enough to get by until it doesn’t matter anymore.
I keep imagining a similar scenario going on in the executive suites at Warner Bros. Discovery these days. The company keeps slashing different corners of its business (layoffs are expected this week again, this time at CNN) as it seeks some sustainable level of operations amid $53 billion in debt.
Meanwhile, CEO David Zaslav has announced a Great Course Correction in the company’s strategic path, going back to the future with a renewed focus on Not Streaming. Basically, the WBD brain trust wants to pivot to what made the company so valuable back before the pandemic, AT&T, Jason Kilar and, oh, a fundamental shift in the business of entertainment.
And like that suddenly asset-poor elder staring at their shriveling investments, WBD is just hoping it can keep enough money coming in to both pay down its giant mortgage while affording more than cat food.
Also read: HBO Max Survives Un-Kneecapped ... for Now
Kilar, of course, was CEO of Warner Media when HBO Max launched 2.5 years ago. He reorganized the company for a full-throated push into streaming, putting the 2021 movie slate on a day-and-date release schedule, launching CNN Plus, and green-lighting an ambitious slate of streaming-only original series and features.
Since Zaslav took over with last spring’s Warner Media/Discovery Media merger, he’s been involved in a relentless campaign of de-Kilarization, killing off streaming projects (beginning with CNN Plus) and focusing on old-school tactics such as theatrical exhibition, a revamped DC Comics and CNN, and a willingness to license lots of content to paying customers.
But as assertively as Zaslav has moved, it’s time to question what he’s doing, given the dominant trends in the industry right now. Given the industry’s dominant trends amid a deepening economic downturn, WBD’s pivot to the past is not building a position of strength:
* Broadcast prime time is a dumpster fire. NBC won the ratings battle as the new fall season kicked off with a 1.0 rating in the 18-49 demographic that advertisers want most. Plenty of Olds still watch the networks, but no advertiser is paying for that, except maybe some pharma brands and Joe Namath and Tom Selleck shilling reverse mortgages. Being an arms dealer can work fine (just ask Sony), but when you’re selling content that others can use to beef up their streaming services, it’s worth asking if that makes sense.
* Cord-cutting in cable is getting scarier than riding a rickety roller coaster in a Halloween hurricane. Comcast, still the biggest cable video provider, just saw its pay TV customer base erode a whopping 10.6% year-over-year. A fast-declining addressable cable audience doesn’t bode well for TNT, TBS, or CNN. At least HBO still has, um, streaming to reach audiences who ditch cable.
* Advertisers seem to have grokked that this connected TV thing is, well, a big thing. Expect much of the $60 billion to $70 billion in dollars still devoted to legacy TV to leak into CTV at even faster rates than cord-cutting during the economic downturn.
* Theatrical exhibition still isn’t close to pre-pandemic days. Only 413 films have been released through 10 months of this year, less than half the more than 900 released in both 2018 and 2019. The domestic box office just crossed $6 billion, compared to more than $11 billion in each of those last two good years. Yes, spandex superheroes still sell, given Black Adam’s second weekend at the top. But WBD’s DC Comics film and TV division is no Marvel. Just-named co-heads James Gunn and Peter Safran may be highly regarded, but it’ll be years before they can transform that operation into a meaningful contributor.
Zaslav has proclaimed that there’s lots of juice still to be squeezed from the fruit of legacy movie and TV operations, and he’s going to be squeezing it hard. Investors seem less persuaded. Shares are down a third since the merger, and the price-earnings ratio is a scant 7.15.
Admittedly, it’s a difficult time for a lot of companies these days.
Meta, for instance, saw shares continue to crater this week after another horrible quarter, so badly that a deeply chastened Jim Cramer took to CNBC's air to apologize to investors for believing in Meta's management team. Cramer’s real sin, he said, was believing Meta would never be so rash as to spend down all its prodigious cash flow in Mark Zuckerberg’s extremely long bet on the Metaverse.
Meta’s problem is pretty much the exact opposite of WBD’s. Zuckerberg is betting the Metaverse is his company’s best hope for the future, building a prime position in the immersive computing environment that eventually succeeds mobile, which is controlled by Apple and Alphabet. Right or wrong, Zuckerberg is committed to spending huge amounts of Meta’s cash flow on a vision that even he acknowledges may take a decade to materialize.
Zaslav, by contrast, is betting on the past. He’s actively de-emphasizing spending on WBD’s future in streaming, on many fronts, while hoping there’s enough left in the old platforms to keep the company going.
It’s a curious decision if you’re trying to position a company for long-term success. It’s almost as if he’s one of those old folks trying to hang on for a couple of more years through another downturn.
Perhaps Zaslav’s real long-term vision is just getting to 2024, when merger provisions expire and he can engineer yet another deal, sell the debt-laden, backward-looking leftovers to some sucker, and retire to his vast Beverly Hills estate. Now, that’s a serious old-school Hollywood move. ■
