Warner Media/Discovery Inc merger - Variety: How David Zaslav Plans to Combine Discovery and WarnerMedia to Unleash ‘Shock and Awe’ on the Streaming Wars

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David Zaslav is sad.

His day started off with a sobering phone call with Suzy Welch, author, host and widow of longtime General Electric CEO Jack Welch. The morning headlines from the once largest company in the world and citadel of corporate America came as a jolt to Zaslav, who previously worked for then-GE-owned NBC for 18 years.

After years of struggling, GE announced on Nov. 9 that it will carve itself up over the next two years into three publicly traded companies focused separately on energy, aviation and health care. The conglomerate founded in 1892 through the merger of Thomas Edison’s Edison General Electric Co. and Thomson-Houston Electric Co. essentially will be no more.

Zaslav, the indefatigable CEO of Discovery Inc., did not miss the cautionary tale offered by the GE story at this momentous point in his long career in television. As Discovery is poised to conclude a transformational merger with WarnerMedia by the middle of next year, it’s Zaslav’s job to make sure that company, Warner Bros. Discovery, will be well positioned to evolve and thrive amid a torrent of market disruption.

“Nothing is entitled,” says Zaslav, reflecting on his conversation moments earlier with Suzy Welch. “You don’t get to keep anything because of what you did yesterday. It’s just a reminder of how hard you have to fight every day to create products that consumers want and nourish, but to stay relevant.”

In a lengthy interview with Variety, Zaslav spoke about the business challenges ahead for the enlarged entity that he will lead as CEO, assuming the $43 billion merger secures regulatory approval.

This past May, Zaslav pulled off Hollywood’s biggest boardroom coup in decades, bringing together Discovery’s businesses with AT&T’s WarnerMedia in a deal that positions him as Hollywood’s newest media baron. He helped orchestrate the surprise merger agreement with AT&T CEO John Stankey, his friend and golfing buddy.

“We’ve been going side by side, John Stankey and I, and we’ve been fighting the same seas,” Zaslav says. “When you put these two boats together, we’re gonna blow by everybody.”

Zaslav has spent most of this year closely studying the entertainment industry, getting to better know the key players and learning how the COVID shock has altered consumer behavior.

“The thing I like about him the most is he’s earnest in ways that are in very short supply these days,” says CAA managing director Bryan Lourd, who’s been one of Zaslav’s close advisers during his tour of Hollywood. “He absolutely means what he says; he’s a through-thick-and-thin guy. And he knows what he doesn’t know.” Lourd says Zaslav’s biggest challenge is “buying an old media company, which is just beginning to pivot.”

Zaslav was already an alpha CEO in his own right — he’s taken Discovery from second-tier cable programmer to Big Media player over the past 15 years — but his new exalted role at Warner Bros. Discovery will expand his sphere of influence and significantly raise his public profile. And the combined company is bulking up to compete even more fiercely with two formidable rivals, Disney and Netflix, which will be no easy feat given their market dominance in the streaming universe.

Those who know Zaslav say he’s equipped for the job.

“David is creative and passionate regarding all aspects of the media industry, and he’s done a wonderful job with the assets he has at Discovery,” says ViacomCBS chair Shari Redstone. “I have great respect for him both as a colleague and a friend.”

Zaslav details his vision for success — getting to the Holy Grail of 200 million-250 million global subscribers — with a suite of streaming services that include HBO Max, Discovery Plus and CNN Plus. He also wants to restore the luster of the storied Warner Bros. studio and help “create a new narrative” on Wall Street for legacy media giants.

"Most of the media business is so mired in what has been happening and where we’ve been, and we really need to focus this company on where we’re going and how lucky we are to have the assets and the hand we have in an environment where I have been for a long time,” he says. “The industry is in the midst of a full evolution.”

Zaslav and his core senior management team (mostly white males) have been developing a blueprint for how the combined businesses will be structured and managed. He won’t share many details, saying it’s premature because the companies are still limited in how much they can discuss and plan together until the regulatory review is complete.

But Zaslav already knows how the big-picture math works for the company in the short term. Warner Bros. Discovery’s goal is to harness the benefits of a projected $8 billion in free cash flow that will come over the next few years mostly from its linear businesses and Discovery’s cable channels as well as WarnerMedia’s CNN, TNT, TBS and others. A portion of the cash will be earmarked for paying down more than $52 billion in debt, while the lion’s share, says Zaslav, will be invested in new content — the lifeblood of a pure-play entertainment concern like Warner Bros. Discovery.

“One of our biggest issues is how do we deploy that cash? And how do we put it to work so that when we emerge five years from now, a very big percentage of our overall company is our global streaming business that’s reaching 200 million-plus homes, and there’s a strong Warner Bros. motion picture business and the Warner Bros. TV production business,” he muses.

Zaslav sees a window of time for Warner Bros. Discovery to invest smartly in content assets that can drive direct-to-consumer subscription businesses, such as HBO Max and Discovery Plus. He also makes it clear that he wants to reenergize the Warner Bros. movie-making machine, calling box office “the top of the funnel” for drawing eyeballs to lucrative direct-to-consumer services.

“Our job is to grow the right side of the company — the streaming business, the motion picture business and the TV production business — faster than the traditional business declines,” Zaslav says.

Zaslav is naturally head cheerleader for the transaction, and he’s unsurprisingly bullish on the combined company’s chances of competing alongside Netflix, Disney Plus, Amazon and Hulu in the top echelon of broad-based streaming services. He gets animated when he talks about the potential of marrying what he calls the “shock and awe” delivered by Warner Bros. and HBO — big content franchises à la “Game of Thrones,” “Batman,” “Superman,” “Wonder Woman” and “Harry Potter” movies — with the lifestyle comfort food and how-to programming that is the backbone of Discovery’s unscripted content.

But the less rosy, more realistic view of the next 24 months is that Zaslav will be stepping into the fight of his life. Morale has fallen to a new low across Warner Bros. and HBO after a tumultuous three-plus years, marked by significant management upheaval and jarring restructuring since AT&T took ownership in June 2018.

There are sure to be further executive changes, including the expected departure of WarnerMedia CEO Jason Kilar when the deal is finalized. Zaslav declined to comment on the fate of Kilar and other top executives in the management-heavy ranks of Warner Bros. who may be vulnerable.

“We’ll make those decisions after we close on who stays and what’s the best structure,” Zaslav says. “But we’ll try to move rather quickly to establish some clarity on what the team is and how we’re going to work together to try and drive this common goal of making Warner Bros. Discovery the best media company in the world.”

Zaslav acknowledges that although Warner Bros. has certainly had its share of upheaval, it is not alone: “We’re in like the seventh inning of disruption,” he says, “and every media company has gone through down-sizing and restructuring. People are scared; the world is changing. They’re not sure their jobs are going to be the same tomorrow and they’re right … and not all media companies are going to survive.”

With AT&T bailing out, it’s up to Zaslav to shore up the foundations for the future of the disparate WarnerMedia businesses and the international bouquet of prime lifestyle, enthusiast and European sports channels that he brings to the WB lot from the Discovery orbit. He needs to generate enough profit to plow it right back into content production that will keep the direct-to-consumer subscription dollars flowing. Learning how to operate on the scripted side of the business of Warner Bros. and HBO, Zaslav is taking a big step into an unfamiliar arena that works at an unfamiliar price point — particularly when it comes to stomaching the high cost of tentpole movies and episodic TV series.

And Zaslav has a well-earned reputation as a tightfisted businessman in running Discovery’s domestic and international businesses. The company has been criticized for pushing its producers to find cost savings and to grind down budgets. In 2019, it provoked a brief revolt among producers when its finance department floated the idea of having them leverage Discovery’s long relationship with Citibank to essentially self-finance license fee payments so that Discovery could better manage its cash flows. (The plan was quickly tabled.)

One of Zaslav’s first big decisions will be whether to combine or keep separate the enlarged company’s two major streaming platforms: HBO Max and Discovery Plus. The name of the game now is subscriber gains and minimizing churn rates. Those are things Zaslav already sees happening with Discovery Plus. Of the two prized platforms, he adds: “We’re going to make them available in a way that is simplest for the consumer.”

In Europe, Discovery has experimented with bundling options for its Eurosport service. With Discovery Plus rolling out around the world, the company has benefited by offering a wider array of content options under one umbrella. After the merger, at least in the short term, Warner Bros. Discovery is sure to offer HBO Max, CNN Plus and Discovery Plus for one overarching price as a bundle to consumers, perhaps with other discrete streaming services such as Motor Trend.

“We’ve had a lot more success [in Europe] putting all our content together than in packaging them separately. When we put sports, news, all of our entertainment and all of our nonfiction together in some markets, we have found lower churn and higher growth,” he says.

Amid all this, Zaslav and his seasoned team of corporate veterans are tasked with pulling off a massive merger and all the tricky integration of operations and cultures that this entails. He needs to meet aggressive financial targets promised to Wall Street. And WBD faces the enormous hurdle of keeping pace with its larger rivals in the content-spending arena, as well as in technology and product innovation. Warner Bros. Discovery is projected to have a market cap of around $60 billion. It will spend a combined $20 billion on content in 2022. By comparison, Disney recently announced it would spend $33 billion on content in fiscal 2022, a 32% increase from the $25 billion it shelled out in fiscal 2021.

“We certainly have the resources to do whatever we need to do,” Zaslav says. “And if we think spending more is going to generate more subscribers or generate more people to go into the movie theaters, and it’s going to help the overall experience that consumers have with us as a content company, then we have the capacity and every ability to do it.”

The need for big companies to continuously evolve is the biggest lesson drawn from the demise of GE, which Zaslav noted was once proudly a widows-and-orphans stock because of its rock-steady quarterly returns.

“When I was running the cable group for NBC, GE was the largest company in the world. And GE was also the stock that was the most widely held. And Jack [Welch] used to say this all the time — he would say it in our hardest moments — that there are more retirees in America that own GE stock and are counting on us,” Zaslav recalls. “So get in there on Sunday, stay all night when you need to. We’ve got to continue to innovate and innovate and innovate.”

Kathleen Finch, the top content executive at Discovery in her role as chief lifestyle brands officer, is already excited about the prospect of blending Warner Bros. and HBO content into the menu for Food Network, HGTV and other unscripted channels. She notes that a Warner Bros. crime drama movie could lend itself to a companion documentary or series on Discovery true crime cabler ID. A studio drive to reboot older animation characters could be greased by a Food Network baking special or a Discovery Plus marathon of some sort.

“Our minds are spinning about what we can do together to really grow the audience base as big as we possibly can,” says Finch. On most nights, the largest brands in Discovery’s linear portfolio alone (Discovery, TLC, Food Network, HGTV, ID, OWN) reach some 25% of the women watching TV. That kind of reach, coupled with the growing Discovery Plus service, can only be valuable to Warner Bros. and HBO/HBO Max marketers.

Finch came to Discovery in 2018 through its acquisition of Food Network and HGTV parent Scripps Networks Interactive, which had been based in Knoxville, Tenn. Finch had a strong track record of running Food and HGTV at the time of the merger, which meant she got the big post-merger job as lifestyle content boss over Discovery’s in-house contenders.

“The feeling you get when you walk the halls here is anticipation and excitement,” Finch says of the environment at Discovery’s Manhattan headquarters. “I adored working for Scripps. But all the opportunities that came to us when we became part of a bigger, broader company were amazing. We’re going to have that all over again” with WarnerMedia, she says.

Longtime associates say one of Zaslav’s biggest personal assets as a leader is an unflagging optimism, mixed with a healthy dose of get-it-done drive. Though known to be demanding and at times impatient, he knows how to manage and he knows how to motivate.

Discovery was a sleepy cable programming company in Bethesda, Md., when Zaslav arrived in January 2007, fresh from NBCUniversal. He had been passed over for Jeff Zucker in the race to succeed Robert Wright as CEO of NBCUniversal, so it was no surprise that Zaslav took off from 30 Rock for far greener pastures when he was recruited to lead Discovery by famed media investor John Malone.

Within a few years, Discovery had gone public and Zaslav was making headlines: He was the highest-paid public company CEO in 2018, with a compensation package valued at $129.5 million, in part because his stock options shot up in value.

After Zaslav arrived in Bethesda, “he brought the aspiration and the heat. All of a sudden we were not just this little company — we were ‘the No. 1 nonfiction media company in the world,’” says a Discovery veteran. “He brought buzz and visibility and confidence and swagger. He opened our eyes to the excitement of what Discovery could be.

The Brooklyn-born Zaslav has a natural sense of mogul to him. It’s a level of swagger that matters when galvanizing a company as large as Discovery, with 9,800 employees, let alone the supersized Warner Bros. Discovery. WarnerMedia at present has about 27,000 employees.

Endeavor CEO Ari Emanuel sees Zaslav as a welcome new force in Hollywood. “He’s incredibly present,” Emanuel tells Variety. “He’s there every day. He’s working there; he’s meeting people and asking the right questions. That hasn’t happened for a while.” Zaslav is in the process of moving from New York to Los Angeles, where he’s renovating the 1942 Beverly Hills mansion that was once home to the late Paramount Pictures chief and producer Bob Evans.

Zaslav’s confidence in WBD’s future is so strong that he sees the tides turning for TV’s old guard. He says he has hard numbers to back up his optimism and the financial projections that Discovery and WarnerMedia have released to date. Now that Discovery has almost a year of experience with Discovery Plus (which launched in the U.S. on Jan. 4), he sees a path to healthy profit margins from digital media. That’s a change from the previous 15 years, when the skeptics saw Big Media trading analog dollars for digital pennies.

Zaslav points out that Discovery Plus now commands $7 a month per subscriber. Discovery gets to keep more of that $7 than it did under the traditional cable/satellite TV system, but it still has to give a cut to digital distributors. Where Discovery really scores is in the “ad-light” version of Discovery Plus that it offers for $5. That service is more valuable because the company can generate about $6 more per subscriber in advertising revenue than with the version that serves up a limited amount of advertising.

The Discovery chief ticks off the revenue streams that flow to the firm’s bottom line with gusto as he makes the case that there is a light at the end of the disruption tunnel for traditional media and entertainment.

“I see real money and real value creation in where digital is today versus where it was 10 years ago, when that ‘analog dollars’ phrase felt so right and so real,” Zaslav says. “It’s analog dollars to a yellow brick road of opportunity.”

Executives who have worked with Zaslav say another of his strengths is knowing when to move on from a crossroads, whether it be change or failure or restructuring or rebranding. Discovery insiders predict that Warner Bros. and HBO/HBO Max employees “won’t know what hit them” when Zaslav brings his can-do and “time to move on” attitude to the rank and file.

“When this company comes together, it’s a start over. It’s a new hand; it’s a new menu,” Zaslav says. “It’s a refocus on a new future, and a new opportunity. And how lucky we all are to be part of Warner Bros. Discovery — me at the very top of that list. How lucky we are to be able to have a real chance with all these great assets to be the place that my grandchildren will come to on every platform in the world. And I think all that is really doable with optimism, with energy and with a will to win. Because I think we got the goods.”

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