In Warner Bros. Discovery’s first public outing since Paramount started lobbing offers as the company pursues both a sale and a separation of it businesses, CEO David Zaslav told analysts, “It’s fair to say that we have an active process underway.”
“We’re on track to create two strong, well capitalized businesses that can each create significant long term shareholder value. The team is hard at work, both on the separation transaction, and on following the board’s direction to evaluate strategic alternatives. You’ve all seen media reports as to potential interested parties, and I won’t comment on anything specific,” he said on a call with analysts after quarterly earnings.
A split, planned for a year, would create two public companies, Warner Bros. (studios and streaming) and Discovery Global (linear television networks). Executives on the call (including WBD CFO Gunnar Wiedenfels and JB Perrette, President of Global Streaming and Games) fielded questions on what assets will live where and areas of overlap. They touched on plans for a standalone sports streaming app after just launching one for CNN.
WBD’s sports offering took a big hit when it lost the NBA but, said Wiedenfels, “We’re going to begin to see some real benefits from the transition off the NBA towards a portfolio of other rights that we acquired as replacements. You’re going to see hundreds of millions of dollars of benefits next year from that transition.
“The important change that we’re working on … is the development of our standalone sports streaming app. We [Discovery Global] will need that in the U.S. market as HBO Max stops the utilization of our streaming rights in the spin-off scenario … and that will put us in a position to have a compelling standalone offering, but also something that will allow us to partner and bundle with our own products and others in the market,” he said.
“It will work differently In the U.S. and outside the U.S.,” Zaslav added. “Outside the U.S., all of the sports content will be available to HBO Max … We have found that all of our movies and scripted series, together with local content and local sports, is a very compelling offering outside the U.S., and that it’s a driver of real growth …. [But] here in the U.S., we didn’t find that … the sports were providing enough value for us in terms of incremental subs. We didn’t get that many. [So] the view is for us that HBO Max is much stronger being a motion picture and storytelling product not dependent on rental sports. And so I think we’ll be able to take advantage of that with this new app.”
CNN, led by Mark Thompson, launched its streaming subscription tier Oct. 28 for $6.99 a month. Asked why launch a separate app when the trend is generally to consolidate streamers, Zaslav said: “We see it as a standalone. That doesn’t mean that it wouldn’t be bundled with multiple other products … It’s now here in the U.S., but very soon it’ll be anywhere in the world you go … It’s a terrific everyday product with robust opportunity to get nourished with all kinds of news other than the live feed, or to have multiple live feeds,” said Zaslav. “We’re very bullish on this as an independent product.”
Wiedenfels assured the Street that the CNN app draws on the company’s existing technology stacks with limited incremental operating costs.
Wiedenfels will be CEO of Discovery Global if it emerges intact and said his team is currently focused on revitalizing its brands around the world. “We are adding thousands of hours [of content] every year to that library, a lot of which comes from our strong free to air presence outside of the U.S., and that is going to be one of the big strengths as we set sail with Discovery Global. And we will be fully focused on figuring out the best way to monetize not only the fresh content but also the enormous library with less exclusivity for HBO Max.”
Perrette clarified that HBO Max will continue to have access to “what we call the best of the Discovery Global assets” as long as they continue to engage views on HBO Max. “So even in the separation, we’ll continue to have access that domestically. We’ll have access to that internationally, including a lot of the free to air content that is bigger and broader, particularly in Europe, from some of our free to air channels and networks. HBO Max will continue to have access to the content that it has seen our subscribers have valued even in the separation.”
Zaslav added, “that will be the case if, in fact, HBO Max goes ahead and splits as planned, or if Warner is acquired as Warner. And, obviously, if the company is acquired in whole, then they’ll have access to everything.” All to say that splitting up the moving pieces of one content and distribution ecosystem is not simple.
Addressing the company’s heavy domestic linear declines, evident in the third quarter report. Wiedenfels think WBD is “working through a transition period” with distributors but he expects improvement next year.
The original separation of WBD was meant to be tax free. Wiedenfels declined when asked to address tax implications if the structure of a deal changed. “Is there a point at which the process you’re running puts the tax free nature of the separation at risk. It would be helpful for us to understand how that all works,” asked an analyst.
“The answer is no, I don’t want to provide any more color on that process,” Wiedenfels said.