David Zaslav and the great “course correction”: why is he betting on the past? (Bloom)

Every time the stock market makes one of those uncomfortably large downward corrections, like pretty much all of this year, people of a certain age nervously watch their suddenly devalued assets and repeatedly calculate whether they have enough to survive. get out of it until it doesn’t matter anymore. .

I keep imagining a similar scenario in Warner Bros. executive suites. Discovery these days. The company continues to cut different aspects of its business (layoffs are expected again this week, this time at CNN) as it seeks a sustainable level of operations amid $53 billion in debt.

Meanwhile, CEO David Zaslav announced a major course correction in the company’s strategic path, looking 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 before the pandemic, AT&T, Jason Kilar and, oh, fundamental change in the entertainment industry.

And like that suddenly asset-poor senior watching his investments shrink, WBD just hopes he can keep enough money to pay off his giant mortgage while offering more than cat food.

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Kilar, of course, was CEO of Warner Media when HBO Max launched 2.5 years ago. He revamped the company for a full-throttle push into streaming, putting the 2021 movie slate on a day-and-date release schedule, launching CNN Plus and greenlighting an ambitious slate of streaming-only original series and features. .

Since Zaslav took over with the Warner Media/Discovery Media merger last spring, he’s been embroiled in a relentless campaign of dekilarization, killing streaming projects (starting with CNN Plus) and focusing on insider tactics. old such as theatrical exposure, a DC Comics and CNN revamp, and a willingness to license a lot of content to paying customers.

But also asserting that Zaslav has moved on, it’s time to question what he’s doing, given the prevailing trends in the industry right now. Given prevailing industry trends amid a worsening economic downturn, WBD’s pivot to the past does not build a position of strength:

* Broadcasting in 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 are looking for the most. Lots of oldies still watch the networks, but no advertisers pay for it, except maybe some pharmaceutical brands and the shilling reverse mortgages of Joe Namath and Tom Selleck. Being an arms dealer can work well (just ask Sony), but when you’re selling content that others can use to bolster their streaming services, it’s worth considering if that makes sense.

* Cutting a cable into a cable gets scarier than riding a rickety roller coaster in a Halloween hurricane. Comcast, still the largest cable video provider, just saw its pay-TV customer base erode 10.6% year-over-year. A rapidly declining addressable cable audience does not bode well for TNT, TBS or CNN. At least HBO still has, uh, streaming to reach audiences dropping cable.

* Advertisers seem to have figured out that this connected TV thing is, well, a big thing. Expect much of the $60-70 billion still spent on traditional television to seep into CTV at an even faster rate than cord cutting during the economic downturn.

* The theatrical exhibition is still not close to the pre-pandemic days. Only 413 films were released in the 10 months of this year, less than half of the more than 900 released in 2018 and 2019. The domestic box office just crossed $6 billion, compared to more than $11 billion in the during each of these past two good years. . Yes, spandex superheroes always sell out, given black adamis the second summit weekend. But DC Comics’ film and TV division of WBD isn’t Marvel. Newly appointed co-directors James Gunn and Peter Safran may be highly regarded, but it will be years before they can turn this operation into a significant contributor.

Zaslav has proclaimed that there’s still plenty of juice to be squeezed from the legacy film and TV operations, and he’s going to squeeze it hard. Investors seem less convinced. The shares are down a third since the merger, and the price-earnings ratio is just 7.15.

Admittedly, it’s a tough time for a lot of businesses these days.

Meta, for example, saw stocks continue to crater this week after another horrible quarter, so badly that a deeply chastised Jim Cramer took to the air on CNBC to apologize to investors for believing in the Meta’s management team. Cramer’s real sin, he said, was believing that Meta would never be foolhardy enough to spend all of its prodigious cash flow on Mark Zuckerberg’s extremely long bet on the Metaverse.

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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 strong position in the immersive computing environment that will eventually succeed mobile, which is controlled by Apple and Alphabet. True or false, Zuckerberg has pledged to spend massive amounts of Meta cash on a vision that, although he admits, may take a decade to come to fruition.

Zaslav, on the other hand, bets on the past. He’s actively downplaying spending on WBD’s streaming future on many fronts, while hoping there’s enough left over on older platforms to keep the company running.

It’s a curious decision if you’re trying to position a business for long-term success. It’s almost like he’s one of those old people trying to hang on for a few more years through another recession.

Maybe Zaslav’s real long-term vision doesn’t come until 2024, when the merger clauses expire and he can engineer another deal, sell the debt-laden, retrograde remnants to a sucker and step aside. at his sprawling Beverly Hills estate. Now, it is a serious old-school Hollywood movement.

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