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Discovery closes in on WarnerMedia acquisition


Discovery, the midsize media company that started as a small cable network in 1985, is about to do something once unthinkable: take ownership of a legendary Hollywood corporation 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 early as Friday afternoon, adding a new juggernaut to the entertainment industry. The two companies will combine television, film and news businesses that generate nearly $50 billion in revenue, forming one of the largest media companies in the country.

The decision by AT&T, WarnerMedia’s parent company, to spin off its entertainment division and merge it with Discovery – in a deal announced in May – will have repercussions in the media world in the months to come. This could cause smaller competitors to seek out offers to increase their size. And that means rivals like Netflix, Disney, Amazon and Apple now have a fierce new contender for streaming dominance.

The task of making the combined company a success falls to David Zaslav, the 62-year-old veteran cable TV chatterbox who has run Discovery for 15 years. He will take over the general management of the new company, which will be called Warner Bros. Discovery in a nod to the Hollywood studio launched almost a century ago.

The discovery of Mr. Zaslav is not left out. The company owns cable networks such as Food Network, HGTV and TLC and owns the rights to a wide range of non-fiction programming ranging from high-level (natural history programs like “Serengeti”) to low-level (“My 600- lb. Life” and “My Feet Are Killing Me”).

But now Mr. Zaslav is stepping into a much bigger and more rarefied position in the world of entertainment. Unlike his more low-key predecessors at AT&T, he’s been brimming with excitement over the past year while edging closer to taking over a powerhouse that will include HBO, CNN, TBS, TNT and the massive movie and television studios. Warner Bros TV.

He will be moving from New York to Los Angeles and has spent months holding court with Hollywood power players at the Polo Lounge in Beverly Hills. It was 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 portfolio of personal real estate. Mr. Zaslav, one of the highest paid CEOs in media, earned a total compensation valued at $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.

The challenges, however, for Mr. Zaslav and Warner Bros. Discovery will be important.

Once the deal is done, Discovery will take on $55 billion in debt, a sum the company will be under pressure to start repaying immediately. Discovery has also pledged to find $3 billion in savings between the two companies, which will almost certainly result in layoffs, particularly for overlapping business functions.

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

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

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

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

Mr. Zaslav, who is expected to hold a forum next week for the roughly 40,000 employees of Warner Bros. Discovery, has already begun to reshuffle the direction of the company. Jason Kilar, the chief executive of WarnerMedia for two years, and the head of Warner Bros., Ann Sarnoff, as well as a number of corporate executives in charge of communications, revenue, human resources, technology, of legal and finance, were on their way well before the takeover of Discovery.

Mr. Zaslav brought in several of his longtime lieutenants for key positions in the new company and broke down some hierarchical structures. WarnerMedia’s chief content officers, Casey Bloys of HBO and Toby Emmerich and Channing Dungey of Warner Bros., will all report directly to Mr. Zaslav.

The deal brings another management change at WarnerMedia, which has undergone a major corporate restructuring over the past few years, and gone through stormy owners over the past two decades, including one led by AOL in the 2000s. , as well as AT&T, its most 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 burden and facing intense competition in the wireless industry, AT&T quickly reversed its ill-fated foray into entertainment and pledged to return to core fiber and wireless businesses. 5G.

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

The new company could cause changes among existing media companies, forcing smaller companies like Paramount to scramble to find a way to scale.

“There’s Disney, HBO Max, Netflix, Amazon and Apple – that’s five,” said media analyst Michael Nathanson, 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 will happen to HBO Max and Discovery+, the merged companies’ streaming services. Initially, the two might be sold as a bundle, but over time they’ll likely be combined into one giant streaming service.

HBO and HBO Max, which consist of new TV series and movies, plus an impressive lineup from the Warner Bros. library, boast over 70 million subscribers; Discovery+ has more than 20 million.

Even combined, that pales in comparison to Netflix, which has more than 220 million paid subscribers, most of them outside the United States. HBO Max only recently expanded into overseas territory, though Discovery has built a strong international business.

“A new giant is born when it proves that it has international stature,” Mr. Nathanson said of Warner Bros. Discovery. “I don’t think the Discovery content on HBO Max in the US is a needle mover. But because international is such uncontested territory, they can have more impact outside of the United States.

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