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- [00:00]
David Brown
Wondery plus subscribers can binge all episodes of Business Wars, Netflix and the Fall of Television early and ad free right now. Join Wondery in the Wondery app or on Apple Podcasts. It's June 2018 in New York City. HBO CEO Richard Plepler strides onto the stage of a screening room in HBO headquarters. He stares out at an audience full of HBO employees. He can feel the nervous energy emanating off of them. Plepler shares some of that anxiety nearly two years ago, in October 2016, AT&T announced its plan to purchase HBO's parent company, Time Warner, almost immediately. The Justice Department objected to the merger on antitrust grounds, and for 20 months the sale has been in legal limbo. But five days ago a federal judge approved the sale, giving HBO a new owner. And today Plepler is leading the first company wide meeting with their new boss, AT&T executive John Stankey. No one, including Flepler, is sure how this acquisition is going to play out. The entertainment business is a new industry for the telecom giant to take on, and many at HBO aren't sure AT and T knows how to run a media company. But hopefully after today, Pluppler and other executives will have a better read on their new boss. Pluppler thanks everyone for coming and lays out the plan for the meeting. For the next hour, I'll be chatting about the future with our new leader, John Stankey, and I want to assure you that there'll be time for you to ask your questions, of which I'm sure there are many. Please welcome John Stankey to the stage. Stankey struts out at 6 foot 5. Stanky towers over Plepler. The two shake hands and then take their seats. Plepler eyes Stanky. He and his new boss don't have a lot in common. Plepler was born and raised on the east coast, plays tennis and he's a staunch Democrat. Meanwhile, Stanky is from Los Angeles and relocated to Dallas as he worked his way up the ranks at AT&T. He hunts, fishes and is a major Republican donor. But Plupler knows that if he wants to stay at hbo, he needs to find common ground and make this new relationship work. Plepler goes for the biggest, most obvious question first. So I think what most people in this room, myself included, are most curious about is why AT and T wanted to buy Time Warner in the first place. Why make a move into the world of entertainment? Stankey nods and speaks to the room. STANK so we're on the brink of rolling out the Next iteration of wireless network technology, 5G. And let me tell you, this baby is a game changer. Using your cell phone out and about isn't going to feel much different from using your laptop in an office. Everything is going to be so fast. Uploads, downloads, everything. You'll be able to watch video anywhere, anytime. Now, you couple that with the rise of driverless cars and we predict that within 5 to 10 years, commutes as we currently know them won't exist. Now, let's pause here. You see what this is really about, right? This is a classic vertical integration play. AT&T doesn't just want to be the pipeline, it wants to own the water too. Controlling both the network and the content. That lets them monetize both ends of the value. Chainpler nods. You mean that since people won't have to drive themselves, they'll have more time to watch content on their phones in the car, right? Exactly. Our estimate is that within four years, people are going to be watching 90 more minutes of video per day. That's over 500 more hours of video per year. And we want to own a piece of what they're watching. We don't want them just liking videos on Facebook. I think everyone here can get on board with that mission. Good, because we're gonna need you to step it up right now. HBO only captures about 35 to 40% of the US market. Plepler bristles that feels like a dig. Lepler is proud of what HBO's accomplished under his tenure. They're one of the most recognized brands in entertainment. They've won dozens of awards. They consistently put out some of the industry's buzziest shows. The lesson here? Never underestimate how a new parent company can change the scoreboard. What once looked like elite market share suddenly gets as underperformance. Yeah, Plepler bristles, but it's nothing personal. Remember, business is war. Well, to be fair, I think we've done a pretty good job with the resources we've been allocated. We've been outbid on some programming, especially by Netflix. Sure, sure. But you can't tell me that HBO hasn't thought of itself as a niche high end brand. We pride ourselves on making quality television. Yes, well, that's too limiting. We're going to need to pivot the HBO brand to something much broader. Pler bites his tongue. Broader often means lower quality. Stankey turns out to face the audience. It's going to be a difficult year. But Silicon Valley is changing how this business operates. You have your whole Sunday night thing, right? You create zeitgeisty shows, air them on Sunday evenings, talk about how you own Sunday night. Sure, but if we want to go after the big boys, dominating one night a week isn't going to cut it. We need you to own multiple hours every day. Notice the shift from prestige to volume, the move from a fine dining experience to an all you can eat buffet. You might even call it the netflixification of legacy media. I think we understand the mandate, but I hope we're all on the same page that if you want us to create more content that dominates that requires a significant investment of capital, well, don't forget that we need to move make money at the end of the day so we can't blow too much on content. I'd just like to point out that HBO makes money now. Not enough. Stankey flashes Plepler a grin and Plepler clenches his jaw. He tried going into this town hall with an open mind, but Lepler doesn't think he's going to last long under the new regime. Plepler has spent his career crafting the HBO brand around producing quality high end work, but his new bosses don't want that. In the era of streaming, bigger is better. But can a high end brand really manage to broaden its appeal enough to attract new customers without alienating their old ones?
- [06:54]
Unknown
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- [07:23]
Hit podcast against the Odds comes the gripping guidebook how to Survive against the Odds. Learn how to handle whatever nature throws at you through gut wrenching true stories of life or death situations. This might just be the most important book you'll ever read. Go to survivalguidebook.com to get your copy of how to Survive against the Odds today or visit your favorite bookstore.
- [07:45]
David Brown
From Wondery. I'm David Brown and this is Business Wars. In late 2019, Disney launched Disney, the first legacy studio to really take on Netflix. Expectations were high for the House of Mouse. Between its storied history and vast library full of iconic franchises, Disney was considered the studio with the best shot at creating a true rival to Netflix. But Disney executives quickly learned that a popular streaming service isn't necessarily a profitable one. Disney wasn't the only legacy studio planning its counteroffensive against Netflix. After its merger with AT&T in 2018, WarnerMedia became serious about entering the streaming wars. They decided to use their prestige cable channel, hbo, as the jumping off point for a new, extensive streaming site. But nota bene. Be careful when stretching a premium brand. Prestige doesn't scale well, and too much dilution can turn your Dom Perignon into supermarket Prosecco pretty fast. Transforming a niche brand like HBO into a platform with broad appeal is a tall order. And AT and T finds itself having some regrets. While a CEO at a low brow cable company has a vision. This is episode three to the Max. It's April 2019 in New York City, almost one year after AT&T's takeover of Time Warner. Discovery CEO David Zaslav hooks his laptop up to a screen in a conference room at HBO headquarters. At the head of the table, WarnerMedia CEO John Stanke types on his phone, ignoring Zaslav. Zaslav clears his throat. Okay, I'm all set. Stankey looks up, giving Zaslav a curt nod. The expression on his face seems to say, let's get this over with. Zaslav isn't surprised. What Zaslav is here to propose seems far fetched. At Discovery Media, Zaslav oversees a suite of cable channels, including hgtv, Animal Planet, the Food Network. He's been at The Helm since 2006, and he's credited with turning Discovery into an economic force. The cable channels rake in profit by churning out low cost, unscripted fare that ranges from nature documentaries to reality shows. Everything from Sex Sent me to the ER to Dr. Pimple Popper. In other words, Discovery makes essentially the polar opposite of Warner's crown jewel, hbo, which specializes in high budget, prestige scripted television. But that's why Zaslav is here. He sees an opportunity. Zaslav hits a key on his computer and brings up the first slide of his PowerPoint presentation. The screen says, warner Brothers Discovery. You ever heard the phrase opposites attract? It's not just true in romance, it's true in business, too. And Discovery and hbo, those are opposites, no question about it. But as different as we are, we have a lot in common, too. Our brands were both built in the era of cable, and we're both trying to navigate this new streaming environment. And to that end, we both face the same problem. Stankey leans forward. And what's that? We're both too niche. Stankey shifts in his seat Well, I don't know about that. Look, in the world of cable, having a distinct lane was a solid strategy because you were bundled with dozens of channels and consumers were used to paying high prices for channels they never watched. But Netflix changed the equation. Now people want large libraries for cheap prices. They want both the Oscar winning movie and the trashy reality show. You have to have it all. That may be an understatement. Netflix didn't just disrupt how we watch it reprogrammed consumer expectations. In the streaming era, binge worthy isn't a compliment. It's table stakes. I don't disagree with that. But Warner Brothers Studios has been around for close to 100 years. I'm confident we have enough content to launch a broad based streaming platform. Zaslav raises his eyebrows skeptically. I think you might be underestimating just how much content you really need to go after the big guns. You have to continuously give viewers a reason to subscribe month after month. Netflix has more money than God and they're pouring it into content. Disney has one of the most enviable libraries in the business. Forgive me for speaking frankly, but I don't think you stand a chance going against them alone. I have to say I disagree. I think we have the winning combo of content to make our new streaming services a success. But let's just say I did agree with you. It's not like merging is a small undertaking. Took almost two years for our acquisition of Time Warner to go through. We can't afford a delay like that before we enter the streaming market. There will be some short term pain. I can't deny that. But just think about the long term gain. We'll be so much stronger together. Stankey hesitates for a moment, then stands up, extending his hand. I appreciate you coming in, but we're not interested in teaming up at this time. Zaslav holds Stankey's gaze for a bit before shaking his hand. As Zaslav exits the building, he reminds himself that some people need to burn themselves before they believe the stove is really hot. And he's confident that Stankey is going to burn himself on this endeavor. And when he does, Zaslav will be waiting to help heal the wound. He just has to be patient. Undeterred by Zaslav's skepticism, Stanke pushes WarnerMedia's new streaming service forward. Warner executives hold spirited debates about what to call the service. They want to lean into HBO's strong brand identity, but they also want to signal that this is more than just hbo. They quickly rule out HBO Feeling that plus has been overused in the market, they bandy about HBO Ultra and HBO Verse but ultimately settle on HBO Max. Executives like that it connotes size, but it's also a person's name, so it feels friendly and approachable. They set a launch date of May 2020 that gives them roughly a year to build and market the new service AT&T took on a sizable amount of debt to purchase Time Warner, so Stanky hopes to avoid spending too much money on creating new content specifically for HBO Max. Instead, to complement HBO's rich history of thought provoking, award winning shows, the new HBO Max will include much of Warner Bros. Vast library. This includes classic films like Casablanca, beloved sitcoms like the Fresh Prince of Bel Air, and children's shows like Steven Universe. But one piece of new content that HBO Max is investing in for its launch is a reunion episode with a cast of the 1990s mega hit Friends. For years, the comedy, about 620 somethings living in New York City, was consistently one of the most popular shows on Netflix. But now it will exclusively stream on HBO Max. You see, streaming wars aren't just about creating new hits. They're about reclaiming the old ones. Better yet, don't get hung up on the love for classic tv. Think of it this way. Legacy IP isn't about nostalgia. It's strategy. And to further lure in new subscribers, WarnerMedia executives are reuniting all the show's stars on the old set to reminisce, reconnect. It's the first time the six actors will appear together on camera since the show went off the Air in 2004. They're also creating several new reality shows to beef up the content offerings at a relatively low cost, since reality programming is cheaper than scripted dramas. Not everyone inside the company agrees that this approach is the winning combination. HBO's worked hard to build its reputation by expanding on what HBO represents. It could confuse consumers and muddy what was once a strong brand. But Stanke is convinced that the new streaming service has the perfect balance of content to be successful. He sees this as a marketing challenge. The key is explaining the new platform so consumers understand what's on offer, that this is not just hbo, it's HBO and a whole lot more. But complicating that mission is the fact that HBO has had its own streaming app since 2010. It's called HBO now, and it lets audiences view HBO content without a cable subscription. There's a concern that many consumers will think that this is just a rebrand of HBO now and not a meaningfully different app full of new content. So the marketing team plans a three month advertising campaign to explain HBO Max, which is set to kick off during the NCAA College Basketball tournament in March of 2020. They also plan events to take place during the south by Southwest festival in Austin, Texas that same March and during the Met Gala in May. They book billboards in the major media markets. But in March 2020, the COVID 19 virus has declared a national emergency. Cities and states start ordering lockdown. Shortly thereafter, the NCAA basketball tournament, south by Southwest and the Met Gala all canceled and with production shut down due to the virus, Warner can't shoot the Friends Reunion Special, which they were counting on. To build excitement for the launch. The marketing team is forced to pivot. In April 2020. They roll out their advertising. Instead of worrying that the wide array of content will confuse consumers, they lean into the mishmash of titles that are available. One ad cuts together content from the wizard of Oz, Big Bang Theory and the Dark Knight with the tagline Where H meets so much more. They launch a series of billboards in the same vein. One reads We've Got Redheads and features comedian Conan o' Brien, Muppet Elmo and Sansa Stark from fantasy epic Game of Thrones, among others. Problem is, the ad seemed to have left out an important fact about the new how consumers access it. In spring 2020, not long before the launch date, the HBO Max team holds a zoom meeting. In the meeting, it's revealed that consumers don't understand how to get this new content. The problem is particularly acute amongst people who already subscribe to hbo. Now many are confused if their HBO account will update or if they need to download a new app. Hate to say I told you so here, but remember when Disney did its initial rollout? Remember Those wreck it Ralph 404 screens and frustrated potential new customers? Distribution is often the Achilles heel of innovation in tech and media alike, brand confusion is death. If your customers need a tutorial to understand your product, chances are it's not ready. Doesn't matter how good the product is, if people can't access it easily, well, you've already lost half the battle. And maybe something more Goodwill. There's confusion among potential new subscribers as well, compounded by the fact that WarnerMedia has failed to reach a deal with either Roku or Amazon to carry the app on their streaming devices. Roughly 80 million Americans use one of the two devices to stream content on their televisions, meaning 80 million potential customers won't be able to watch the app on their TVs on launch day. Even with these red flags, Stanke is determined to launch the app as scheduled on May 27, 2020. He's convinced that once HBO Max exists in the real world, consumers will understand the appeal, and any kinks in the system can be worked out later. However, shortly before the launch, Stanke announces he's stepping down as CEO of WarnerMedia. It's part of a promotion plan for Stankey. He'll continue as COO of AT&T with the expectation that he'll soon be named CEO of the telecom giant. Former Hulu executive Jason Cuylar is named as the new head of WarnerMedia. He takes over just three weeks before HBO Max debuts. There's little time for him to change the approach, and when launch day comes, it does not appear that consumers share John Stanke's clarity on the appeal of the service. In its first month, only 4.1 million people sign up, less than half of the 10 million who subscribed to Disney within the first 24 hours that it debuted. User feedback is that the app is difficult to navigate, full of technical glitches, and all the various brands just feel like a mishmash and nothing the good kind. There's CNN next to Cartoon Network, next to Turner Classic Movies, there are the Harry Potter movies and the Rocky movies and the Batman movies and all of Looney Tunes as well as Sesame Street. And since the Friends Reunion special has been delayed, there's no must see content driving subscriptions. Industry analysts call the app a dud and a missed opportunity. Never launch a new platform without a killer feature. In streaming, that means content, ideally exclusive must see content. No Friends Reunion, no frenzy. In the wake of the disappointing launch, Kyler makes a bold move. In December 2020, he announces that all of Warner Bros. Movies slated for a theatrical release in 2021 will simultaneously be shown in theaters as well as on HBO Max. This includes major blockbusters like Sci Fi Epic, Dune and Godzilla versus Kong. This is a massive change to how studios typically distribute movies. Since the 1970s, distributors have operated with staggered discrete windows. Traditionally, films were first released in theaters, then on home video, then cable, then network television. It was an effort to keep the various ways of watching a movie from competing with each other, therefore maximizing revenue as physical media sales have declined and with the increase in cord cutting, the windows have blurred a bit in recent years. But what Kyler is doing is shattering the window. Movie theaters and HBO Max will be in direct competition over the same film at the same time in the eyes of industry observers, he's sacrificing box office receipts to boost HBO Max's numbers. This was the Nuke the Playbook moment. Sacrificing the box office to feed your own platform may get you a short term subscriber boost with long term fallout when it comes to consumer trust. And not just among consumers either. Remember Scarlett Johansson feeling blindsided when Disney decided to put Black Widow out simultaneously to theaters and onto Disney plus negatively affecting her payout? Got more than just a little bit of press too. In the long run. What's this gonna mean for your lifeblood? Your A list content in the short term, the announcement does bring buzz to HBO Max. There's now a clear reason to subscribe to the service, and by early 2021, their subscriber numbers bump up to nearly 64 million. But they are still way short of their competitors. Netflix has surpassed 200 million subscribers and Disney is nearing 100 million. And the move infuriates theater owners as well as Hollywood creatives who feel their work is being disrespected. It seems like every step HBO Max takes results in a stumble, but there's one person who's watching HBO Max's struggle with a degree of satisfaction, Discovery CEO David Zaslav. And in early 2021, he decides it's time to make his move.
- [24:58]
Lindsey Graham
Lamont Jones's world is shattered when his cousin dies in custody just weeks after entering prison. The official report says natural causes, but bruises and missing teeth tell a different story. From Wondery comes Death County, Pennsylvania, a chilling true story of corruption and cover ups that begins as one man's search for answers, but soon reveals a disturbing Lamont's cousin's death is just one of many and powerful forces are working to keep the truth buried. With never before heard interviews and shocking revelations, Death County, Pennsylvania pulls back the curtain on one of America's darkest institutional secrets. This isn't just another true crime story. It's happening right now. Follow Death County Pa on the Wondery app or wherever you get your podcasts. You can binge all episodes of Death County PA early and ad free right now by joining Wondery. At the turn of the 20th century, rapid industrialization, urbanization and political corruption were ravaging America. But soon President Theodore Roosevelt and a diverse group of reformers known as Progressives would fight back. Hi, I'm Lindsey Graham, the host of Wondery's podcast, American Historytellers. We take you to the events, times and people that shaped America and Americans, our values, our struggles and our dreams. In our latest series, we explore the Progressive Era, which came to be defined by Teddy Roosevelt and others who believed in a strong, active government that worked on behalf of all Americans rather than the privileged few. As the United states entered the 20th century, these progressives hoped to steer the nation in a bold new direction, to launch an era of reform to restore power to the people. Follow American historytellers on the Wondery app or wherever you get your podcasts. Experience all episodes ad free and be the first to binge the new season only on Wondery. Join Wondery in the Wondery App, Apple Podcasts or Spotify. Start your free trial today.
- [26:59]
David Brown
It's February 2021 in East Hampton, New York. Discovery CEO David Zaslav sprawls on the couch watching the AT&T Pebble Beach Pro Am tournament on the Golf Channel. As he watches, his mind wanders. He loves golf, but it's hard to get excited about watching it on tv. If it were any other year, he'd be in California watching it in person, watching at home. It's a stark reminder of how much the pandemic has disrupted everything. But the pandemic hasn't been all bad for Zaslav. Just last month, Discovery launched its own streaming Apple. Unlike other streaming services that promote must watch content that attempts to hit the zeitgeist, Discovery aspires to be the background noise that people put on while they do other tasks. Audiences can binge reality TV episodes of Naked and Afraid or Deadliest Catch. Zaslav doesn't have ambitions to win awards or create great art. He wants to make low brow popular fare that turns a profit. And his gambit is working. Within its first month, Discovery garners 11 million subscribers, more than HBO Max signed up in its first month. But it is a niche product, and there's a ceiling to how much Discovery can grow without a wider range of content. And Zaslav still thinks A merger with WarnerMedia is the most pragmatic step forward. Launching his own streaming service has only solidified that viewpoint. In his mind, the media environment is an ocean, and now he has a boat on the water. But to reach the other side, where Netflix and Disney have set up camp, he needs a bigger ship. Otherwise, a wave could come along and capsize him at any time. And after HBO Max has faltered over the past nine months, he wonders if John Stanke has been having second thoughts about his rejection of their merger. On this cold afternoon, Zaslav decides to find out. He pulls out his phone and starts typing an email. He pecks out a subject line. Watching AT&T Pebble beach, and he throws in a couple of golfer emojis, along with a smiley face and sunglasses. He keeps the body of the message short, writing, only you around. I've been thinking. Then he hits send. He turns his attention back to the tournament. A few minutes later, his phone buzzes. It's a new email from John Stankey always scares me when you do that, he writes, followed by a smiley face. Would you like to chat? Zaslav grins. Yes, he would like to chat. In April 2021, small teams from each company meet in one of Zaslav's brownstones in Manhattan. The confab lasts for over five hours. As they throw back coffees, the group hatches the framework of a plan. AT&T will spin off WarnerMedia, that new, smaller company will then merge with Discovery. David Zaslav will take over as CEO of the new company, Warner Bros. Discovery, or WBD for short, and AT&T will be out of the Entertainment business just five short years after it entered it. In mid May 2021, about six weeks after the initial meeting, Stankey and Zaslav hold a joint press conference via Zoom, where they announced the merger. Industry observers are shocked. From the perspective of analysts, AT&T went into massive debt and endured two years of judicial review to buy Time Warner and is now cutting it loose before they even reap the benefit. As Zaslav prepares to become a real Hollywood tycoon, he meets with dozens of entertainment industry insiders. He talks in the press about how long he's admired Warner Bros. And HBO in particular. Warner Bros. Library is already impressive, controlling the rights to adored franchises including Batman, Harry Potter and the Matrix, and he promises to pour $20 billion into content for the streaming app. But when the deal officially closes almost a year later, In April of 2022, Zaslav is singing a different tune after Netflix's disappointing first quarter. Investors want to see more than just growth from streaming companies. They want to see profitability. And it'll be harder for WBD to reach profitability than other streamers, since it's carrying more than $56 billion in debt from the deal. To purchase WarnerMedia from AT&T. To reach profitability, Zaslav is going to have to move quickly to cut costs and pay down debt aggressively. Almost immediately. In late April 2022, Zaslav shuts down CNN streaming site CNN, which just launched a month earlier. He ousts WarnerMedia executives and signals that a large number of layoffs are coming. He cancels several TV shows and scraps movies that are in Development. These are bold moves, but they do follow a fairly standard playbook for how Hollywood studios reduce overhead. But then Zaslav takes his cost cutting to a level that shocks Hollywood veterans. That's because cutting content isn't just about savings. It's about signaling. Zaslav's move tells Wall street, we're serious about profits, but creatives, not so thrilled. And that's an understatement. In August 2022, actor Brendan Fraser receives a news alert on his phone. He reads the headline. The movie Batgirl, which was set to debut on HBO Max, is now being shelved. Warner Bros. Discovery won't pay to finish the film and is no longer planning on releasing it. Frazier does a double take. He's in that movie. He plays the villain. And this is the first he's hearing about all this. He quickly calls his agent. Is this some kind of fake news? They're not really pulling Batgirl, are they? I'm furious that this is how we found out. But I've made some calls, and unfortunately, Brendan, it's true, they're not going to release the film. But that doesn't make any sense. The last time I talked to the producers, they said they heard the studio was concerned considering releasing it theatrically. They were waiting to hear about money for some reshoots. Well, the studio's saying that the first few test screenings weren't that great, so they've decided to cut their losses. But lots of movies don't test great. They still get released. Plus, they already paid 90 million bucks for this thing. How much are they even saving by not finishing it? A couple of million? It just doesn't make any sense to me. Well, from what I understand, it's less about the money they're saving by not finishing and more about how much they can write off on their taxes if they accidentally. Seriously? They can do that? Seems so. Sorry, man. This business can be brutal. As Fraser hangs up the phone, he's reeling. He's been working in Hollywood since his early 20s, more than half his life, and his career has had its ups and downs. Over the decades, he's learned that luck plays almost as big a role in a film's success as quality. But he's never had a film fail just so the parent company could write down some taxes. This feels like a very bad sign for the health of the film industry. Let's pause for a moment to understand what's happening here. Warner Bros. Discovery doesn't think this movie's gonna do well. So with this move, they can deduct the cost of the production so far to the tune of around $90 million from the amount of income that they're taxed on that year. And they don't have to throw good money after bad by spending more on marketing and distributing the film. Batgirl isn't the only film Zaslav and his team shelve. They also scrapped the latest Scooby Doo movie, and later they decide to scrap the Looney tunes film Coyote vs. Acme as well. They also pull a number of shows off HBO Max, including old episodes of Sesame street and the sci fi drama Westworld. It's all seemingly in an effort to garner tax write downs. Audiences feel betrayed. Many assumed the promise of streaming was that their favorite content would always be available, no matter how many people watched it. Artists are also furious. It feels disrespectful of their work, reducing their blood, sweat and tears to numbers on a tax form. So when the Writers Guild of America goes on strike in May 2023 in large part over how they're compensated for streaming content, Zaslav and his massive compensation package are the subject of much of the writers ire. On the picket line, writers hold signs that single out Zaslav. Some ask how many private jets David Zaslav needs. Others simply state f. Zaslav. And when Zaslav gives the commencement address at Boston University, he faces outrage.
- [35:58]
Unknown
The CEO was met with boos and angry chants from students as he took the stage over the weekend in Boston Boston to accept his honorary degree and for the commencement speech for the class of 2023.
- [36:10]
David Brown
But amidst the disruption of the strike and the anger from creatives, Zaslav stays focused on his mission to turn WBD into a profitable company with a major streaming platform at its Center. In late May 2023, WBD relaunches its streaming platform, which they rename Max. It now features the combined library of WarnerMedia and Discovery Plus. There's a lot of pressure on the success of Max. Zaslav has promised investors that this new streaming service is the key to his business plan. It's the linchpin and his goal to compensate for declining revenue from the company's cable channels and the sluggish box office receipts since the COVID shutdowns. The initial reaction is good. 70% of established HBO Max users switch to the new service within the first week, which is on target for company estimates, and no major glitches are reported. With a successful launch of Max, WBD is set to be the first legacy studio to turn a profit on streaming for an entire year. But one profitable year isn't enough to keep investors happy. Zaslav needs Max to turn a profit reliably. And to do that, he needs to combat churn the phenomenon where consumers sign up for short periods of time before canceling. To make Max stickier for consumers, Zaslav has his eye on some more unlikely alliances.
- [37:48]
Lindsey Graham
As a contractor for the nsa, Edward Snowden had access to a range of top secret government programs. But as he learned more about these clandestine operations, he came to understand a devastating secret the government was conducting mass surveillance on its own citizens. Hi, I'm Lindsey Graham, the host of Wondry show American Scandal. We bring to life some of the biggest controversies in US History. Presidential lies, environmental disasters, Corporate fraud. In our latest series, Whistleblower Edward Snowden changes the national conversation about privacy on the Internet as he risks his own freedom and his family's well being. Follow American Scandal on the Wondry app or wherever you get your podcasts. Listen to all episodes ad free and be the first to binge the newest season only on Wondery. You can join Wondery in the Wondery app, Apple Podcasts, or Spotify. Start your free trial today.
- [38:39]
Misha Brown
Every big moment starts with a big dream. But what happens when that big dream turns out to be a big flop from Wondery and ill media? I'm Misha Brown and this is the Big Flop. Every week, comedians join me to chronicle the biggest flubs, fails and blunders of all time. Like Quibi.
- [39:01]
David Brown
It's kind of like when you give yourself your own nickname and you try to, like, get other people to do it.
- [39:06]
Misha Brown
And the 2019 movie adaptation of Cats.
- [39:09]
Unknown
Like, if I'm watching the dancing and.
- [39:11]
David Brown
I'm noticing the feet aren't touching the.
- [39:12]
Unknown
Ground, there's something wrong with the movie.
- [39:15]
Misha Brown
Find out what happens when massive hype turns into major fiasco. Enjoy the Big Flop on the Wondery app or wherever you get your podcasts. You can listen to the Big Flop early and ad free on Wondery. Plus get started with your free trial.
- [39:30]
David Brown
At wondery.com/foreign It's April 2024 in New York City. A Warner Brothers Discovery executive sits in his office, attempting to make a dent in the mountain of emails in his inbox. When his phone rings, checks the caller id, it's a number from inside NBA headquarters. Finally, the WBD owned cable channel TNT has had the rights to air NBA games since the 1980s, but the license is up for renewal for the first time since 2016. A lot has changed in the media landscape in the past eight Years. And the two sides have been locked in intense negotiations for months. Live sports rights have become increasingly important to cable channels. They're seen as one of the last ways to keep customers paying for cable television in the streaming era. So the NBA knows it has considerable leverage to demand a higher fee. But recently, WBD made an offer that the executive is confident the NBA will accept. He picks up the phone. Hello? It's an NBA executive. Hey, so we got your offer. Thanks for that. The WBD exec squints. This does not sound like the start of an acceptance. The thing is, we've been thinking about it, and we need to alter the package of games we're offering you. Is this a joke? We've been in discussions for months and only now you want to change what it is that we're negotiating over? I get that it's not ideal, but you know as well as I do that we're in fast changing times. The situation's fluid. And to that end, we've decided we want to create a third package of games to license. So that means we're now offering you a skinnier package. The WBD executive grips the arm of the chair. The NBA has the power in this negotiation, so there's little he can do if the WBD doesn't make a deal with a league. There are plenty of other companies who would be eager to snap up the rights. Apple and Amazon in particular, have been investing heavily in adding live sports to their streaming services. The NBA would be a major coup for either one, and they both have deep pockets. I would remind you that per the terms of our contract, we are still in our exclusive negotiation period. Don't worry. We haven't talked to anyone who might license this third set of games. We're just saying we want to create this package. Okay, I'll take this back to the team here and get back to you. The WBD executive hangs up the phone, frustrated. He really thought they had a deal. And now their exclusive negotiating window is almost up. There isn't much time to figure this out before WBD has to go up against an open bidding situation. Approximately three months later, in July 2024, it's announced that TNT Sports lost the rights to the NBA. Starting in fall 2025, the NBA will be aired on ESPN and NBC and streamed on Amazon. Market analysts estimate that WBD will lose around $600 million in profits without those NBA rights. Other observers speculate that this is the start of the collapse of WBD's cable business. That without the NBA, WBD won't be able to command high carriage fees from the cable company companies. It's actually the second big blow to Zaslav when it comes to live sports. Now, remember from last episode how Disney had at first planned to get together with WBD and Fox to form a streaming service. They were calling it Venue, and it would offer consumers a wide range of live sports for far cheaper than a typical cable plan would cost. That was set to debut in August 2024, and that was hailed as a game changer, the death knell for the cable TV era. But almost immediately, the venture faced pushback. Fubo, a sports focused streaming service, sued the three companies, accusing them of engaging in anti competitive behavior. A judge blocked the service from proceeding until the suit could be heard. Well, now Zaslav's getting burned again. But the idea of teaming up sticks with him. And in summer 2024, WBD announces another collaboration. Everything you want is right here.
- [43:58]
Lindsey Graham
The Disney Plus Hulu Max bundle plans starting at 16.99amonth.
- [44:04]
David Brown
It's a full circle moment for the entertainment industry. This bundle is not dissimilar from the old cable model where consumers would pay one price for 200 or so channels, the very model that Netflix disrupted. But there are benefits for both consumers and providers when it comes to bundling. Customers get a deal. Subscribing as a bundle costs a little over half of what it would cost if a consumer paid for each service individually. From the point of view of the providers, even though they make less money per subscriber, the churn rate is lower, which helps stabilize revenues. And by boosting subscriber numbers, Max and Disney can charge more to advertisers on their ad tiers. It's a win, at least in the short term. Early Data shows that 80% of consumers who subscribe to Max via its bundle with Disney and Hulu have stuck with the service. Three months later, that's a higher than average retention rate than any of the services attained on their own. It's even a better retention rate than Netflix achieves. Long the leader of the pack when it comes to consumer stickiness and in the wake of the success of streaming and the loss of sports rights, Zaslav oversees a restructuring of wbd. He spins the cable channels, including cnn, Animal Planet and tnt, into their own unit separate from studio operations and streaming. That signals that WBD may be preparing to sell off its cable business, a sign that Zaslav sees streaming as the only path forward. Take note, listeners, this is the digital unbundling of the TV era. First came the cable breakup. Now comes the spin off of the cables themselves. As the calendar turns to 2025, Netflix still dominates with 302 million subscribers, and WBD is still in third place. But in his earnings call about the first fiscal quarter, Zaslav makes a bold announcement. WBD streaming division will double its profitability over the next year and hit 150 million subscribers by 2026. After years of losses upending long established norms in the entertainment business and angering creatives, the streaming services have figured out a viable and profitable business model. And ironically, with its reliance on ads bundling and careful content spending, it doesn't look that different from the cable model it replaced. But the stability may be short lived. According to Nielsen, which has been tracking American media habits since the days of radio, YouTube is the most watched streaming service. And in one survey, 31% of respondents across a wide range of ages said if they could only have one streaming service, they'd pick YouTube. Netflix came in second with 21% of response. And as more and more viewers turn to user generated content over traditional studio produced programming, the streamers may have to pivot their business model once again. Netflix, Disney and WBD may have cracked the code to make streaming a profitable business for now, but another battle is just around the corner. Interesting to think of the irony here. After years of disruption, streaming success looks a lot like the thing it killed Ads? Bundles? Is that what consumers are really looking for? There's another perennial takeaway here, especially for the incumbents. You know the biggest threat often comes from below. YouTube isn't just a video site, it's the stealth titan of the streaming economy, as they used to say in television land. Stay tuned from wondering this is episode three of Netflix and the Fall of Television for Business Wars. A quick note about recreations you've been hearing. In most cases, we can't know exactly what was said. Those scenes are dramatizations, but they're based on historical research. If you'd like to read more, we recommend and It's Not TV the Spectacular Rise, Revolution and Future of HBO by Felix Gillette and John Coblin and David Zaslav. Hollywood Anti Hero by Claire Malone published in the New Yorker. I'm your host, David Brown. Austin Rachlis wrote this story. Sound designed by Kyle Randall. Fact checking by Gabrielle Joliet. Our producers are Tristan Donovan of Yellow Ant and Kate Young. Our managing producer is Desi Blalock. Our senior managing producer is Callum Plews. Our senior producers are Emily Frost and Dave Schilling. Karen Lowe is our producer emeritus. Our executive producers are Jenny Lauer Beckman and Marshall Louie for wondering.
- [49:09]
Lindsey Graham
In the first half of the 20th century, one woman changed adoption in America. What was once associated with the shame of unmarried mothers became not only acceptable but fashionable. But Georgia Tann didn't help families find new homes out of the goodness of her heart. She was stealing babies from happy families and selling them for profit. Hi, I'm Lindsey Graham, the host of Wondery show American Scandal. We bring to life some of the biggest controversies in US History. Presidential lies, environmental disasters, corporate fraud. And in our latest series, a young adoption worker moves to Memphis, Tennessee and becomes one of the most powerful women in the city. By the time her crimes are exposed decades later, she's made a fortune and destroyed hundreds of families along the way. Follow American Scandal on the Wondry app or wherever you get your podcasts. Experience all episodes ad free and be the first to binge the newest season only on Wondery Plus. You can join Wondery plus in the Wondery App, Apple Podcasts, or Spotify. Start your free trial today.