Warner Discovery CEO David Zaslav is being brutally honest about what it’s like to restructure Warner Bros. and it’s no easy task as it turns out he inherited a bigger mess than he thought he would. The studio, DC, the streaming offerings at HBO Max – all of it is a challenge he sums up with a quote from Kevin Costner on Yellowstone.
“We have an awful lot to do, and an awful lot to undo,” Zaslav said during a keynote conversation at the RBC Media conference as reported by Deadline. “It was much more challenging than we thought. You opened up the closet, things fell out. We are fixing them. Some assets are better than we thought at the core – the talent is better than we thought.”
However, the tenacious executive feels up to the challenge. In fact, he welcomes it. “But there was a lot that was unexpectedly worse than we thought,” he continued. “For me, I don’t want to buy a company that is really well run. It’s hard to make it better. So every day we open a closet, and something comes out.”
HBO Max is the most cluttered closet, bursting at the seams from mismanagement for the past two years and dubbed “irrational” by the executive. Content including major releases available in 2021 netted subscribers who didn’t stay for long. “Right now, we can get 30 million people with Euphoria, but they can come on for two months, watch Euphoria and then leave.”
Zaslav added, “Do we want to create incentives for people to be there? There are a lot of companies that have a business where the majority of people are there for the year.” According to his numbers, HBO paid $2.5 billion for content in 2019 and that’s exactly how much they made that year. Last year, they spent almost $7 billion, losing $3 billion.
“I don’t know if I’ve ever seen anything like that,” he said. Making note of “all those direct-to-streaming movies” released last year “right on top of the service,” Zaslav continued, “Our whole library went on HBO Max. We weren’t selling any of it. But it was all…there.” And most of it was not being watched or adding subscribers.
“We looked, and we said, most of that is not being watched, or we don’t think anyone is subscribing because of this. We could sell it non-exclusively to someone else,” he explained, realizing at the same time the option of taking matters into their own hands is still in play. That would entail creating their own free service.
But Zaslav reminded everybody that those services, from Tubi to Pluto, are actually ad-based. “We can create a Tubi and a Pluto. But instead of buying content for someone else to populate our AVOD, we can create the content ourselves,” he said. The trouble is global market factors pinch those apps’ operations. The ad market is “very weak” right now.
Europe is in a better position than the United States. Still, advertisers there “are waiting to see how things play out for the economy, inflation, interest rates, and consumer spending” as they creep out of COVID. Between HBO, HBO Max, and Discovery+, WBD tallies 94.9 million direct-to-consumer subscribers as of the third quarter. In 2023, they’ll have just one service to worry about.
Plans are in place to combine HBO Max and Discovery+ into one entity with potential tiers including a free entry-level one. Consolidation being fundamental, new releases probably won’t be part of any package. Zaslav will look to other, more traditional avenues of making money in show business, mainly back at the theaters selling the tickets.
He believes theatrical windows are still the way to go. “I’ve seen the data,” Zaslav said. “A movie that opens in theaters performs five times as well as when it goes directly to streaming. The economic return when you open something in the theater.” This claim is bolstered by the unexpected theatrical earnings of Top Gun: Maverick this year.
The seasoned exec was critical of dropping films on streaming, considering the tactic “just a way to drive subscribers to drive the share price,” and comparing it to the dot com bubble of 30 years ago. “Subscribers today are like clicks in the ‘90s. People were running around buying companies and aggregating clicks,” he said.
At theaters and the box office is where Zaslav wants his “undervalued asset” to compete with Marvel which he praised Disney for handling. He brought James Gunn on board and promoted Peter Safran to implement their “bible” for DC as a connected universe to rival Marvel’s. Growth with a renewed focus on Superman and “to drive the hell out of DC” was promised.