Three years ago, David Zaslav, the head of Warner Bros Discovery, orchestrated a monumental merger between his relatively smaller company Discovery and HBO’s owner Warner Bros, a $43 billion endeavor that he called a “rendezvous with destiny.” On Monday, Zaslav effectively reversed that decision, dividing Warner Bros Discovery into two distinct entities, each confronting unique futures.
The streaming and studios segment, which includes HBO and Warner Bros’ production operations, is gearing up to compete against tech giants like Netflix. In contrast, the legacy networks division, encompassing CNN, Discovery Channel, and a significant portion of the company’s $37 billion debt, is grappling with a steep decline in audience numbers.
Many within Warner expressed frustration over the split, feeling they had endured years of upheaval only to return to a similar state as before. “The move reveals a company fumbling its way through disruption,” noted Emarketer analyst Paul Verna.
Industry bankers and executives regard the restructuring as part of a broader unraveling of the once-mighty cable era. Cable television, a historically lucrative sector, is increasingly seen as a melting ice cube. The ascendance of Netflix and substantial investments in streaming from major players like Apple and Amazon have pushed millions of Americans to abandon their cable subscriptions.
The past decade in the media industry has been marked by painful layoffs, reorganizations, and executive departures as companies adapt to this new reality. Advisers to top media figures offered a bleak perspective on the WBD split, suggesting it resembles a “big, ugly exit tax” for shareholders trying to leave behind outdated media assets, with one observer stating, “At the end of the day, nobody really wants these assets.”
Despite this turmoil, the recent deal is seen as a win for Zaslav, who rose to prominence in Hollywood with the debt-laden merger. Since relocating to Los Angeles in 2022, he has made a series of controversial decisions that earned him the reputation of being “the most hated man in Hollywood.” His tenure featured drastic layoffs, yet he maintained that audiences still valued Discovery’s offerings from channels like HGTV and Food Network, which he believed would bolster HBO’s flagship streaming service, Max, in its competition against Netflix.
Zaslav’s efforts included rebranding HBO Max in an attempt to broaden its appeal, only to revert to the original name. In a memo to employees on Monday, he asserted that the merger had been successful, even though WBD’s stock price plummeted from $24 to $9 since the merger’s conclusion.
While shareholders express discontent, Zaslav has been compensated with approximately $400 million in pay and stock options over the past three years. Just last week, shareholders voted against his latest $52 million compensation package in a largely symbolic protest.
Zaslav is set to continue overseeing WBD’s more dynamic and lucrative assets post-split, while the daunting task of revitalizing underperforming media segments like CNN and TNT will fall to Gunnar Wiedenfels, the company’s chief financial officer. WBD’s struggles have been compounded by missteps, such as the abrupt discontinuation and subsequent revival of a new CNN streaming service under its current leadership.
While HBO Max has seen gradual global expansion, plans to compete head-on with Netflix were dialed back in favor of a focus on high-quality content. In his recent memo, Zaslav acknowledged that “the world around us continues to evolve rapidly,” with shifting technology, consumer preferences, and a transforming media landscape impacting how stories are created and consumed.
The breakdown of the WBD merger is a part of a series of high-profile media consolidations unraveling amid these industry shifts, which began with the $350 billion merger of AOL and Time Warner in 2000, followed by AT&T’s $85 billion acquisition of Time Warner in 2018, and concluded with the merger of Warner and Discovery in 2022.
As the media scene continues to undergo upheaval, the WBD split could pave the way for further mergers. The company’s streaming division might attract interest from tech giants or potentially merge with another studio. “Amazon, Apple, YouTube, or somebody else could come in now,” commented an insider familiar with major tech firms.
Veteran media executive Jonathan Miller, now leading Integrated Media, believes that the WBD division could unlock new opportunities for partnerships, such as a collaboration between WBD’s network division and Comcast’s new cable business, Versant. He concluded that the focus would shift towards refining operations rather than previous strategies aimed at expansion: “People are getting their house in order.”