Hollywood Reporter: Why Warner Bros. Discovery’s Issues Are Beyond ‘Batgirl’

Story from Hollywood Reporter:

Months before the Justice Department blessed the $43 billion Warner Bros. Discovery merger, 30 members of Congress warned the agency in a letter that the resulting competition vacuum could allow the newly formed giant to ignore what consumers want. Among the antitrust concerns they pressed was that it could dampen diverse and inclusive programming — which has become a common criticism after Warner Bros. Discovery canned its $90 million HBO Max film Batgirl, the first DC movie led by a Latina, Leslie Grace.

“There’s been no indication with Batgirl that they’ll shop it around,” Rep. Joaquin Castro, D-Texas, tells The Hollywood Reporter. “So this incredibly gifted Latina actress and wonderful story get thrown down the drain for a tax write-off.”

In the four months since the deal closed, Warner Bros. Discovery's CEO David Zaslav has overhauled the entertainment powerhouse. During an Aug. 4 earnings call, he trumpeted a 10-year plan for DC and a “reset” that involved shelving Batgirl — part of a cost-savings push and pivot back to creating projects for theaters. “It’s not about how much,” said Zaslav, speaking of their content offerings. “It’s about how good.”

The message was clear: Batgirl doesn’t live up to Warners’ new standards for theatrical releases and has no place in its streaming plans. (Blue Beetle, starring Xolo Maridueña as DC’s first Latino superhero, in December was scheduled for an August 2023 theatrical release after initially being destined for HBO Max.) So far, Warner Bros. Discovery has taken an $825 million write-down on content — axing projects like Scoob!: Holiday Haunt, Wonder Twins and J.J. Abrams’ big-budget sci-fi drama Demimonde — to help pay off $50 billion-plus in debt it racked up to complete the deal.

Experts question if these moves indicate that the newly-merged company has too much market power under antitrust laws, which seek to promote innovation, choice and product variety. Merger enforcers consider if a deal will incentivize a company to “withdraw a product that a significant number of customers strongly prefer,” according to the DOJ and FTC guidelines. “You have to ask if this combined entity has sufficient market share to act unilaterally with respect to the traditional parameters of competition, like pricing and output,” says USC law professor Jonathan Barnett. “You’d be concerned by some of the post-closing actions.”

Castro agrees that the company’s plans to slash spending on content raises antitrust issues, observing that there’s “already been large cuts throughout the company and they’re anticipating more.” He also notes that the prospect of having a long-labored project killed for tax purposes will scare off talent. “I don’t know if that was the best way for David Zaslav and his new team to introduce themselves to Hollywood,” he says. “I don’t see people wanting to do business with them.”

Warner Bros. Discovery’s reputation with creators and viewers has indeed taken a hit. “It’s hard not to feel like this is a pattern,” says Gordita Chronicles showrunner Brig Muñoz-Liebowitz. Her HBO Max series about a 12-year-old Dominican girl (Oliva Goncalves) in 1980s Miami adjusting to life in the U.S. was also canceled — despite critical acclaim and popularity. The series was the seventh-most-watched comedy among all comedies released in 2022, according to analytics shop Whip Media. Muñoz-Liebowitz adds, “I would think they’d want to grandfather the commitments they made into their future decision-making and not alienate the consumers they have.”

Warner Bros. Discovery, which declined to comment for this story, said the move was inspired by a strategic shift away from live-action kids and family programming — though the show isn’t listed under the “family” category on HBO Max, only “Latino.”

With the decisions to shelve Batgirl and pass on a second season of Gordita Chronicles, Warner Bros. Discovery may be glossing over the significance of the Latinx community — a group that is drastically underrepresented in Hollywood. Even though Latinos make up about 19 percent of the country, they account for only 6 percent of roles, according to a 2021 UCLA diversity report. “The new Warner Bros. Discovery leadership is relying on formulas and cost-saving measures that have historically excluded marginalized communities,” says Rafael Agustín, CEO of the Latino Film Institute. “They assume they are doing everything right for their bottom line, not realizing how badly not investing in diversity and inclusion today is going to hurt their business in the future.”

HBO Max’s offerings have been as well known for their cultural diversity as for their quality and ambition. Some of the streamer’s stickiest content has been facilitated through partnerships with Japanese animation house Studio Ghibli and Crunchyroll, which specializes in anime distribution. (HBO’s licensing deal with Crunchyroll expired in January.) But the goodwill and competitive edge garnered from embracing a wide collection of titles across several genres, like Insecure, A Black Lady Sketch Show and Studio Ghibli’s Spirited Away, may now be eroding. “It seems like self-harm, to be honest,” Muñoz-Liebowitz observes. “Say you were a fast-food restaurant and you have a really popular menu item. When you’re bought by another company, would you get rid of the item? It doesn’t make sense to get rid of something popular just because you’re making a business change.”

In addition to content itself, another indicator of whether Warner Bros. Discovery is running afoul of the merger guidelines is what the newly merged entity ends up charging for a combined HBO Max/Discovery+ service when it launches in 2023. Under antitrust law, an acquisition’s effect on price is the heaviest factor in weighing a merger. It’s worth looking at the aftermath of AT&T’s purchase of WarnerMedia before the Texas phone giant gave up on its entertainment ambitions. Less than two years following the Justice Department’s unsuccessful effort to block the deal — the agency’s first challenge to a vertical merger in 40 years — AT&T raised DirecTV prices even though it promised during its legal battle to lower post-merger bills.

HBO Max is among the most expensive streaming platforms at $14.99 monthly, and it remains to be seen how much appetite there is among consumers for a price hike to add Discovery+ offerings. There may not be much overlap in the demand for content across the two platforms. The company said itself during its quarterly earnings call that HBO Max skews male, specializes in scripted content and appointment viewing, and is the “home of fandoms,” while Discovery+ skews female, focuses on unscripted programming and comfort viewing, and is the “home of genredoms.” Viewers may revolt if Zaslav is misinterpreting the synergies offered by the marriage of HBO Max and Discovery+ into a single service. “When there’s consolidation and only a few companies are controlling the market, they become more monopolistic,” Castro says. “There’s a greater chance they’ll be able to raise prices on consumers and limit selection.”

© 2022 The Hollywood Reporter, LLC.