Insider Look: How Warner Bros. Discovery is Streamlining Its TV Operations

  Entertainment executives have long dazzled Wall Street with impressive streaming subscriber counts, but after Netflix's first-quarter loss and Disney+ reaching 130 million subsciptions, profitability has taken precedence as an objective for entertainment executives. Zaslav wants his company to demonstrate that modern media companies with billions in content spending can generate billions in cash flow as well. To do this, he's begun with cleaning up streaming operations. Content Creation On Wednesday, executives of the combined WarnerMedia/Discovery conglomerate unveiled plans for their own streaming service that they said would allow them to compete more effectively against popular services like Netflix and Disney+, while projecting that they'd attract "200, 300 or 400 million" global streaming subscribers over time. Goal setting requires massive investment in content - specifically originals - with early signs not looking promising: the company has already made major cuts in this area with CNN+ being one of the first casualties. Direct-to-stream movie units are being disbanded while production units from legacy divisions like CNN and Warner movie division are seeing their budgets significantly cut back. WBD appears to be shifting their streaming business strategy away from growth and toward profitability, prioritizing retention over expansion. New tech features like default kids profiles and expanded personalization may play a pivotal role here; even if this means cancelling high-profile projects like the CNN+ revival or Abbott Elementary series to achieve that end goal. However, even if this strategy proves successful for a company's expansion in a crowded and competitive space, attracting top talent while remaining consumer-focused will remain difficult tasks. One blatant sign of these priorities is an apparent lack of diversity among TV programs that are being greenlit. Although top brass at this company frequently uses the term "innovate" during press interviews, their stories appear significantly less revolutionary than, say, creating another Big Bang Theory spinoff or giving JK Rowling another role onscreen. WBD's decision to prioritize profitability isn't a bad one and may be necessary in order for it to survive the disruptions in cable TV industry and build an impressive streaming business; but for now it presents risk, and investors will closely scrutinize WBD's results. Distribution Disney and Netflix continue to lose millions of subscribers every year as people opt to cancel cable. Zaslav has revamped his divisions in order to increase streaming subscribers, including cutting straight-to-streaming movie offerings and cutting back original programming from legacy divisions like CNN. The CEO aims to transform WarnerMedia-Discovery into a cash flow generator. He believes he can demonstrate how even with billions spent on TV production costs, it can still generate billions in free cash flow to pay down debt and buy back shares. Since 2016, he has taken several cost-cutting steps, such as shuttering CNN+ less than three weeks after it had launched and eliminating Discovery's streaming app. Furthermore, jobs have been cut; most recently cutting 50 people from Discovery Sports division. As part of his plan for the future, he's planning on consolidating some of Discovery's linear channels into one subscription streaming app called Max, which will feature both HBO shows and popular Discovery series like Fixer Upper, Dr. Pimple Popper and "The Goldbergs." People familiar with this matter anticipate it will launch within months or so and cost around $16 a month. Though Zaslav's restructuring will necessitate additional cuts, he intends to increase marketing and international operations budgets while simultaneously expanding revenue by signing more license deals such as that with WWE last month. Furthermore, he's open to owning more sports leagues provided they do not compete with his existing holdings of Formula One and UFC. The keystone of the company's strategy lies within their vast library of TV and film content, from highly popular HBO shows to DC blockbusters as well as reality TV, children's programming and classic cartoons. As pay-TV continues its downward spiral, this library has proven even more valuable - one reason the stock of the company has been on an upswing since April's merger closure. Marketing Streaming services have quickly become the primary revenue generators for media companies, which have adjusted their business models accordingly to focus on producing original content and marketing it via direct-to-consumer streaming services. Therefore, these companies invest in cutting edge technologies and marketing strategies in order to maintain competitive edge. AT&T's WarnerMedia merger with Discovery created an enormous global company. Their combined IP includes HBO hit shows like Game of Thrones and DC movies; 90 Day Fiance and Fixer Upper featuring Chip and Joanna Gaines as reality franchises; Mythbusters, Shark Week and Gold Rush from Discovery as award-winning series/films/events; as well as other top scripted television, movies/sports content as well as unscripted programming from around the globe. Attracting new entertainment options to consumers by creating an innovative, compelling and scalable direct-to-consumer SVOD offering with premium content across genres that caters to all demographics--from international hits to top domestic shows is expected of its media portfolio. Within its first 12 months of operation, WBD had shelved projects and laid off thousands of employees as it sought to reduce its massive debt load. While executives kept repeating "innovate" in press interviews, changes seemed more focused on meeting financial goals rather than meeting artist and viewer needs. WBD, for instance, has not greenlit any TV show featuring or created by marginalized voices since its inception last year; all the attention has instead focused on creating a spinoff of Big Bang Theory with J.K. Rowling as author; they've also given her additional money for her upcoming book sequel series; but HBO Max streaming service -- set to compete against Disney+ and Netflix globally-curated selections -- remains without an audience. After conducting an honest assessment of his company, Chief Executive David Zaslav issued a stern directive to his division heads: reimagine their units as family businesses with free cash flow as the priority and submit new strategic plans with their recommendations. His directive has led to thousands of layoffs at Discovery-branded cable networks and CNN as well as substantial changes within other divisions within Discovery. Analytics Warner Bros. Discovery is using data and analytics to make strategic decisions and streamline its TV operations by identifying where and how the company should invest its resources, as well as possible opportunities for cost reduction. One major decision has already been taken: rather than attempt to revive CNN+ streaming service, which lost 150,000 subscribers within its first few weeks of operation, they have decided to close it down completely and fold its content into HBO Max as part of their vision of becoming one-stop news and entertainment programming destination. Unfortunately this may result in layoffs as staffers currently responsible for running these channels may need to be redeployed in order to launch next year's product that the new company plans on selling. Regarding other cost reduction measures, Bank of America analyst Reif Ehrlich estimates Warner Bros. Discovery could save an estimated $3 billion with their merger by optimizing marketing cost structures, improved pricing structures and consolidating certain corporate functions to reduce overhead and administrative expenses. These savings, combined with revenue from direct-to-consumer products, should allow the company to break even in 2024 and generate $1 billion worth of EBITDA by 2025. Meanwhile, its legacy pay-TV businesses continue to lose millions of subscribers each year as consumers increasingly opt out of traditional pay TV services; Zaslav hopes that his streaming units' success can keep these cable TV businesses afloat while simultaneously benefitting from sports league rights deals worth billions that allow TNT and other channels to carry those games. Success of streaming products is of utmost importance for the company, which Zaslav and other top executives emphasized at investor events around the globe this week. They convinced investors that streaming can deliver on its $43 billion savings promise after merging with Discovery last spring.