Discovery Closes In on Acquisition of WarnerMedia

Discovery, the midsize media company that began as a small cable network in 1985, is on the verge of something once unthinkable: taking ownership of a legendary Hollywood company that controls Batman, Harry Potter, “Sex and the City,” “Game of Thrones,” CNN and March Madness.

Discovery Inc. and WarnerMedia are expected to complete their mega merger as soon as Friday afternoon, adding a new behemoth to the entertainment industry. The two companies will combine television, film and news operations that will generate nearly $50 billion in revenue, forming one of the nation’s largest media companies.

The decision by AT&T, the parent company of WarnerMedia, to spin off its entertainment division and merge it with Discovery, in a deal announced in May, will be felt across the media world in the coming months. It could push smaller competitors to look for deals to increase their size. And it means rivals like Netflix, Disney, Amazon and Apple now have a fierce new competitor for streaming dominance.

The job of making the merged company a success falls to David Zaslav, the garrulous 62-year-old veteran cable TV executive who has run Discovery for 15 years. He will take over as CEO of the new company, which will be called Warner Bros. Discovery in a nod to the Hollywood studio started nearly a century ago.

Mr. Zaslav’s discovery is not far behind. The company owns cable networks such as Food Network, HGTV and TLC and has the rights to a huge variety of non-fiction programming ranging from the intellectual (natural history programming like “Serengeti”) to the humbler (“My 600-lb. Life” and “My Feet Are Killing Me”).

But now Mr. Zaslav is entering a much bigger and more rarefied position in the world of entertainment. Unlike his more low-key predecessors at AT&T, he has been buzzing with enthusiasm over the past year as he nears taking charge of a powerhouse that will include HBO, CNN, TBS, TNT and the huge television and movie studios of Warner Bros.

He’s moving from New York to Los Angeles, and has spent months in court with Hollywood powerhouses at the Polo Lounge in Beverly Hills. She has been featured in a glossy photo inside the former home of Robert Evans, the Hollywood producer whose mansion Mr. Zaslav recently added to his already impressive personal real estate portfolio. Mr. Zaslav, one of the highest-paid CEOs in media, earned a compensation package worth $246.6 million last year.

“I think we’re going to be the best media company in the world,” he said after the deal was announced, with characteristic showmanship.

However, the challenges for Mr. Zaslav and Warner Bros. Discovery will be significant.

Once the deal is complete, Discovery will take on $55 billion in debt, a sum the company will be under pressure to start paying off immediately. Discovery also promised to find $3 billion worth of savings between the two companies, which will almost certainly end in layoffs, particularly for overlapping business functions.

And Discovery, which has a long tradition of making low-cost nonfiction programming, has indicated that it won’t necessarily spend at the breakneck pace that has become de rigueur in entertainment.

“We plan to be careful and judicious,” Zaslav told investors in February. “Our goal is to compete with the major streaming services, not win the spending war.”

He noted that HBO’s recent string of scripted dramas, including “Euphoria,” “The Gilded Age” and “Succession,” seemed like more than enough for the network.

“Would HBO do much better if they had three really successful scripted series right now?” Mr. Zaslav said in February. “It’s not clear that they would be.”

Zaslav, who is expected to convene a forum next week for Warner Bros. Discovery’s roughly 40,000 employees, has already begun reviewing the company’s leadership. Jason Kilar, CEO of WarnerMedia for two years, and Warner Bros. boss Ann Sarnoff, along with several corporate officials in charge of communications, revenue, human resources, technology, legal and finance, were far ahead of him in his the acquisition of Discovery.

Mr. Zaslav has appointed many of his former lieutenants to key positions in the new company and has eliminated some reporting structures. Key WarnerMedia content executives Casey Bloys of HBO and Toby Emmerich and Channing Dungey of Warner Bros. will report directly to Mr. Zaslav.

The deal brings yet another leadership change at WarnerMedia, which has undergone a major corporate shakeup in recent years and weathered ownership storms over the past two decades, including one run by AOL in the 2000s, as well as AT&T, its most important company. recent owner.

AT&T bought WarnerMedia (formerly Time Warner) in 2018 for $85.4 billion with the promise of bringing streaming video to millions of mobile phones. But under a huge debt load and facing intense competition in the wireless industry, AT&T quickly backtracked on its ill-fated foray into entertainment, vowing to return to core businesses related to fiber and 5G.

“What an embarrassing chapter for what was once one of America’s most storied companies,” one analyst noted last year.

The new company could spark changes among existing media companies, forcing smaller companies like Paramount to scramble to find ways to grow.

“There’s Disney, HBO Max, Netflix, Amazon and Apple, that’s five,” said Michael Nathanson, a media analyst, pointing to the major streaming services. “You don’t want to be in position six, seven or eight. At some point, they will say, ‘We have to find a dance partner.’”

The bigger question will be what happens to HBO Max and Discovery+, the streaming services of the merged companies. Initially, the two could be sold as a package deal, but over time they are likely to be brought together into a giant streaming service.

HBO and HBO Max, consisting of new TV series and movies, as well as an impressive list from the Warner Bros. library, have more than 70 million subscribers; Discovery+ has over 20 million.

Even taken together, that pales next to Netflix, which has more than 220 million paying subscribers, most of them outside the United States. HBO Max has recently expanded into foreign territory, although Discovery has built a strong international business.

“A new giant is born when they prove they have international scale,” Nathanson said of Warner Bros. Discovery. “I don’t think Discovery content on HBO Max in the US moves any needles. But because international is such undisputed territory, they can have more of an impact outside of the US.”

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