Warner Bros. Discovery Won’t Overspend to Win Streaming Subscribers, CEO David Zaslav Says

Warner Bros. Discovery Won’t Overspend to Win Streaming Subscribers, CEO David Zaslav Says



Warner Bros. Discovery Inc. Chief Executive

David Zaslav

said the newly formed entertainment conglomerate, whose assets include CNN, HBO and Warner Bros., would move fast to put his vision in place.

“We will clearly take swift and decisive actions on certain items, as you saw on CNN+ last week,” Mr. Zaslav told analysts on an earnings call Tuesday morning referring to the decision to shutter CNN’s direct-to-consumer streaming service about a month after it launched.

Mr. Zaslav also said the company wouldn’t spend wildly to boost its various news and entertainment assets when it comes to streaming.

“We are not trying to win the direct-to-consumer spending war,” he said.

Warner Bros.

Discovery


WBD -4.14%

shares were 7.4% lower early Tuesday.

Mr. Zaslav began leading Warner Bros. Discovery earlier this month, after

AT&T Inc.

spun off its WarnerMedia unit and Discovery merged with it. The merger created a media giant whose properties include the Warner Bros. movie studio and the cable channels TNT, Food Network and HGTV in addition to HBO and CNN.

Warner Bros. Discovery has said it plans to combine its two most prominent streaming services, HBO Max and Discovery+, into one giant offering that will include both an ad-supported platform and a commercial-free offering. Mr. Zaslav didn’t provide updates on when the combined service would go live but said it was a priority.

He said there was a lot of crossover appeal between shows on HBO and Discovery. “You need a diversity of content for everybody in the home,” Mr. Zaslav said. “Our research shows that people who watch [HBO’s] ‘Euphoria’, their second favorite show is [TLC’s] ‘90 Day Fiancé.’ ”

Warner Bros. Discovery Chief Financial Officer

Gunnar Wiedenfels

said he would be scrutinizing content and marketing budgets at the new company as part of its stated plan of finding $3 billion in cost savings from the combination. Warner Bros. Discovery has a debt load of more than $55 billion to contend with as well.

Mr. Wiedenfels said the combined company spends $23 billion on content and an additional $5 billion on marketing, and he wants to make sure there is a return on investment for those outlays.

“We intend to drive the highest level of financial discipline here,” Mr. Wiedenfels said. He said he isn’t necessarily looking to reduce spending but to be “more efficient and consistent.”

Mr. Wiedenfels lowered the new company’s 2022 profit outlook by $500 million. He also said a similar approach to the decision to close CNN+ would be taken with other “chunky investments” that are “lacking a solid financial foundation.” He didn’t elaborate.

The remarks were made as the company disclosed the first-quarter results for Discovery. The results didn’t include Warner Bros. operations, which were acquired on April 8. AT&T reported the WarnerMedia results in its quarterly update last week.

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Discovery’s first-quarter revenue rose 13% to $3.16 billion, and net profit more than tripled to $456 million, helped in part by the unwinding of interest-rate derivative contracts related to the AT&T deal.

In the U.S., advertising revenue grew 5%, helped by higher pricing. Distribution revenue added 11%, primarily driven by the growth of Discovery+. The company ended the quarter with 24 million direct-to-consumer subscribers, an increase of 2 million subscribers since the end of the fourth quarter.

Mr. Zaslav has hinted at company meetings that layoffs are likely coming as well. There are many overlapping areas in the new company, including administrative and legal operations, as well as in the various businesses, such as cable networks, advertising sales and distribution.

The closing of CNN+ so soon after it launched sent shock waves through the news organization. CNN and then-parent WarnerMedia spent heavily prepping the platform and had committed continued investment in the coming years to build what it believed was the future delivery platform for the global news asset.

The new leadership, however, questioned the strategy even before the closing of the merger to combine WarnerMedia with Discovery, people familiar with their thinking said.

Mr. Zaslav had telegraphed his thoughts on CNN+ at a Warner Bros. Discovery companywide town hall earlier this month, when he said he wanted to put all the content operations under one umbrella instead of several stand-alone services. He said Discovery learned that lesson after launching a series of niche services that were eventually combined.

“We don’t want to go to eight places. We want to go to one place, and we want to see everything we want to see,” Mr. Zaslav said consumers told Discovery at the time, according to a person who attended the meeting. “When we put it all together, we were much more successful.”

CNN is getting new leadership next week, when

Chris Licht

officially starts as chairman and chief executive of the network. Mr. Licht is a news and entertainment veteran who has held senior positions at MSNBC and CBS News and most recently was executive producer of the

CBS

late night show hosted by

Stephen Colbert.

Besides restoring trust with staff after the gutting of CNN+, Mr. Licht has several challenges to address, including determining how to program the 9 p.m. hour of CNN, which has lacked a full time host since

Chris Cuomo

was fired last year.

Mr. Zaslav praised CNN on the call with analysts, saying “During critical moments the world turns to CNN,” and it is “the nation’s premier news outlet.”

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Write to Joe Flint at [email protected]

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Rachel Meadows

Rachel Meadows

Trending topics news writer who enjoys cooking, walking her dog and travel.