In 2015, David Zaslav compared the industrywide rush to scripted TV to a kids’ soccer game — all players are clumped around the ball, while the rest of the field is wide open. “It’s quite crowded, it’s pretty expensive, and it’s looking more and more like the movie business,” the then-Discovery CEO said, explaining why his executive team wouldn’t join the Peak TV fray.
Fast forward to 2022, and Zaslav, as CEO of Warner Bros. Discovery, is running a scripted powerhouse and betting on movies as a key content engine. But he, along with CFO Gunnar Wiedenfels, still vows to zag where the industry zigs. “We have no intention of being beholden to anyone in particular or to a specific business model,” Zaslav said during an Aug. 4 earnings call. “Simply put: we are open for business.”
As Zaslav detailed, that plan includes setting a measured goal for streaming subscribers, returning to an emphasis on theatrical releases and even declaring an openness to licensing content to third parties. This strategy positions streaming as just one of many segments of a multifaceted media firm, in contrast to Netflix’s all-in model, while feeding into the company’s plan to find $3 billion in cost savings. “The reality is, this is what Warner needs to do given its financial condition,” says analyst Rich Greenfield, who runs LightShed Partners. “What Warner does in the future, if they can de-lever, time will tell.”
As it stands, Warner Bros. Discovery has been a merged company for only about four months. In its first report as a combined entity, the conglomerate reported second-quarter revenue of $9.8 billion and a loss of $3.4 billion, alongside $53 billion in gross debt. (In contrast, Netflix’s gross debt at the end of its second quarter was $14.3 billion, though it did not have debt related to a merger, alongside revenue of $7.97 billion.)
Working within that financial position, Zaslav and team are reversing the strategy of his predecessor, former WarnerMedia CEO Jason Kilar, who doubled down on streaming by releasing the studio’s entire 2021 film slate on HBO Max at the same time as the theatrical releases amid the COVID pandemic. Using Batgirl as the latest example, Zaslav said his team had analyzed the results of this streaming-first experiment, but had not been able to find a business case and financial rationale for the strategy.
“We have a different view on the wisdom of releasing direct-to-streaming films and we have taken some aggressive steps to course-correct the previous strategy,” Zaslav said. “We will fully embrace theatrical as we believe it creates interest and demand.” As films move from theatrical to streaming and elsewhere, “their overall value is elevated, elevated, elevated,” he touted, mentioning such recent examples as Elvis and The Batman.
Other cuts have followed similar cost-cutting measures, including the axing of animated feature Scoob!: Holiday Haunt, the shelving of Wonder Twins, another DC film in development, and the scrapping of J.J. Abrams’ big-budget streaming series Demimonde.
The theatrical-first model marks a return to Hollywood’s traditional approach of optimizing content distribution and maximizing revenue via various platforms, while also serving as counterprogramming to any sector giants that have been putting all their eggs in the streaming basket. Under Zaslav’s plan, Warner Bros. Discovery will create a subscription streaming platform combining HBO Max and Discovery+ content, set to launch in summer 2023, with plans to launch a free, ad-supported service later on.
On this platform, the company will continue to spend on programming, but at a more measured rate than competitors. Zaslav is highlighting HBO Max (and touting the upcoming launch of Game of Thrones prequel House of the Dragon) as a centerpiece of the platform, while also maintaining important brands on the Discovery+ channel, including a new cooking game show from Guy Fieri. WBD has outlined a less lofty streaming subscriber growth target of 130 million by 2025 for its planned platform combining HBO Max and Discovery+ than, for example, Disney, which has projected 230 million to 260 million Disney+ subs by 2024.
“We’re not in the business of trying to pick up every sub. We want to make sure we get paid,” Zaslav said.
While this may comfort investors who had been wary of subscriber slowdowns amid high content spending on other platforms, Greenfield views it as a company “scaling back their ambitions,” marking a near-term win for Netflix and others who can afford to continue to invest.
The Warner Bros. Discovery team is also not precious about the content it produces, as Zaslav declared that the company will happily sell it to the highest bidder, unlike rivals that have increasingly kept their content for themselves and their streaming services. “What is critical to us, we are going to keep that exclusively,” he said, seemingly speaking to the company’s original content as well as its big franchises, such as Harry Potter. But content that “could be nonexclusive and have no impact on us, we want to monetize that to drive economic value.”
All in all, this approach to streaming is “pragmatic in every way imaginable,” Moody’s analyst Neil Begley says, adding that Zaslav is still protecting the company’s biggest brands, while also using them to help fund the new offerings. “They need that cash flow to fund the transition of the distribution of their content” to various platforms.
And with Warner Bros. Discovery’s financial position, which includes a reliance on its legacy TV business, a more cautious push into streaming is necessary, MoffettNathanson analyst Robert Fishman argued in a report. Mentioning the company’s lowered 2023 earnings before interest, taxes, depreciation and amortization guidance of $12 billion-plus, down from $14 billion previously, he said that this “highlights WBD’s deep dependence on profits from linear cable networks that are under increasing pressure in a declining pay TV ecosystem.” All of this doubles down on Zaslav’s cash-flow-first strategy, a profit metric showing the ability to fund operations without external financing.
The question is: Will it work?
It may be too soon to tell, Begley says. However, the conglomerate has an experienced management team and assets in place that should help the team create another competitive top-tier streaming platform, despite any financial headwinds, the analyst notes.
For now, Cowen analyst Doug Creutz argued that this strategy should endear the company to those spooked by recent streaming subscriber growth challenges for Netflix and others. “The fact that WBD management is so clearly laser-focused on managing the business for free cash flow generation over the long term will only make shares more attractive to value-oriented investors,” Creutz wrote in an Aug. 5 report, “particularly compared to other media names that still seem somewhat unsure about whether top-line growth or bottom-line performance is the more important metric.”
This story appeared in the Aug. 10 issue of The Hollywood Reporter magazine. Click here to subscribe.