the industry

3 Big Questions About the WarnerMedia-Discovery Deal

Succession; Property Brothers. Photo-Illustration: by Vulture; Photos by Discovery and HBO

By now, you’ve probably read the news that AT&T-owned WarnerMedia and Discovery are planning to merge, in the process creating a media-and-entertainment colossus combining the company that houses Harry Potter, Game of Thrones, and Succession with the networks behind Property Brothers and 90 Day Fiancé. Beyond making more money for shareholders, today’s deal was driven by one overriding reality: Old-school media companies need to get bigger to survive against Netflix in the battle for streaming supremacy. And with plans to spend up to $20 billion annually on content, the still-untitled company will definitely be big.

The rush to scale up has been going on for a few years now. It’s what prompted Disney to snap up Rupert Murdoch’s best 20th Century Fox assets a few years ago. It’s why current Discovery CEO David Zaslav, who will also run the new entity, engineered the 2018 purchase of the former Scripps networks (HGTV, Food Network). And it’s why we are likely to see at least one or two additional megadeals over the next year or so. (There is already buzz around Hollywood that Comcast is increasingly interested in some of ViacomCBS’s entertainment assets, if not the whole company.)

Despite holding a news conference and appearing on cable news, there is a lot that is still unknown about the new mash-up of Warner and Discovery. Here, three of the biggest questions we have after today’s blockbuster announcement:

Do HBO Max and Discovery+ continue as separate apps, get combined into something bigger, or both?

While Warner-Discovery will be a monster under the hood, what is far less clear is whether there will eventually be one Netflix-size super-app housing all of the combined companies’ many assets. Disney, for example, could have decided to shut down Hulu and fold it into Disney+ after it won full control of the former following the Fox merger. Instead, it opted for a bundle approach, giving consumers the chance to pay one monthly fee for access to both apps (in addition to ESPN+). And yet internationally, Disney did just the opposite: Since Hulu doesn’t have a footprint outside the States, the Mouse House put all of its more adult-oriented programming under the brand name Star and made it a separate section within Disney+ for consumers in parts of Europe and Asia.

Reporters asked Zaslav on Monday which approach he will take with HBO Max and Discovery+, and he basically punted, saying that different options have all worked well for different companies. I suspect he has an idea which path he prefers, but there is no reason to get that detailed so soon, particularly since federal regulators still need to approve the deal. While stuffing HBO Max with Discovery’s bounty of unscripted content would make an already great app even more appealing to consumers, it might also make it even more expensive. And given that Max is already the costliest mass-appeal streamer out there, at $15 per month, I don’t think the new company can risk raising prices anytime soon. (Of course, one should never underestimate the entertainment industry’s ability to overestimate the appeal of its product.)

That said, I can’t imagine that Zaslav doesn’t find some way to give consumers the ability to stream all of Warner-Discovery’s brands via one app. The Disney bundle kinda sorta works because Disney+ benefits from being seen as a family-friendly space and because Hulu had a decade of brand awareness. By contrast, there are no similar brand clashes with HBO Max and Discovery+ shacking up. The HBO halo hasn’t been dimmed by sharing the same digital real estate as reruns of The Nanny and Ellen DeGeneres–produced reality shows, so throwing 90 Day Fiancé into the mix can’t hurt. What’s more, stand-alone Discovery+, as great a product as it is, isn’t getting to Hulu’s 39 million subscribers — let alone Disney+’s 104 million subs — anytime soon, if ever. Its best chance to help sell subscriptions for Warner-Discovery is if Discovery content sits next to HBO Max content. Doing so and keeping the top price for HBO Max around $15 — or around $10 for the about-to-launch ad-supported version of HBO Max — will mean eating some short-term revenue losses. Ultimately, however, it will help Warner-Discovery get the hundreds of millions of global subscribers it needs to thrive.

What happens to WarnerMedia chief Jason Kilar?

According to the New York Times, it looks like the former Hulu exec has already started negotiating his departure from the company, barely a year after he got there. While hardly a shock, given the way AT&T’s brass basically negotiated away his company without telling him until just a few days ago, it would still be a big loss. Kilar brought a new-media energy to WarnerMedia (and thus HBO Max) that had been sorely lacking. Hollywood vets freaked out over his decision to put Warner Bros. movies on HBO Max the same day they debuted in theaters, but it has been a massive win for the streamer. Not only has it generated endless publicity for the platform, but I suspect it’s helped convince a number of linear HBO subscribers who had been slow to activate their Max subscriptions to finally download the app and start streaming. (You can’t watch the Warner premiere movies on the HBO linear channel.)

Plus, Kilar’s bold move — along with earlier decisions by Universal — helped slash the ridiculous 90-day window of exclusivity that theater owners had long insisted on. He also smartly reorganized Warner’s various movie and TV businesses in a way that broke them out of their separate silos, making it easier for the company to operate in a streaming universe. I don’t mean this as a knock on Zaslav — he’s a very smart, very savvy exec who has proven to be adept at evolving his businesses quickly. But he’s also a creature of the old entertainment industry and not nearly as versed in the ways of Silicon Valley as Kilar. Netflix works so well because it does showbiz and tech equally well. Will Warner-Discovery be as nimble without Kilar around?

What does this mean for all the Discovery and WarnerMedia cable networks?

As recently as five years ago, a deal between Warner and Discovery would have been trumpeted as a massive union of two of the biggest names in cable, with all sorts of speculation about what it would mean for their array of networks. Now, all the attention is rightly on the implications for streaming — and yet this deal does have significant consequences for what’s left of the cable-TV business. Both companies have already gone through years of pain consolidating their respective linear businesses: Zaslav integrated the old Scripps networks (HGTV, Food Network) with his Discover holdings (TLC, Animal Planet), while AT&T oversaw the demise of the Turner brand of cable channels (TNT, TBS, CNN, Adult Swim, TCM) and their combination into a more amorphous mass of Content Producers.

As it always does, all that vertical integration resulted in hundreds of loyal employees losing their jobs. Sadly, that is what will happen again, with Zaslav boasting of billions in cost “efficiencies” from the merger. It seems that hundreds more people are set to see their livelihoods disappear.

Beyond the human cost, the Warner-Discovery merger won’t necessarily change all that much about what consumers see in their cable packages. There is very little overlap between the Discovery and WarnerMedia cable brands. That said, TBS and TNT have — in addition to live sports — been doing a lot more unscripted of late as they cede scripted to HBO Max. Given Discovery’s massive success in that genre, I’m pretty sure its execs will take on a bigger role programming the current WarnerMedia-owned networks. Zaslav has also proven fond of reinventing middling Discovery networks, giving them new brands and content missions. TBS and TNT are already in major flux, while CNN-adjacent HLN has long been a poor clone of Investigation Discovery; I think all three could be blown up under Zaslav.

By contrast, I don’t think the Discovery boss will mess with networks such as HBO, CNN, or Turner Classic Movies, all of which are doing mostly fine. Indeed, Zaslav insisted on Monday that he wants to invest more in CNN, using Discovery’s documentary content to supplement the work CNN does in that space. CNN chief Jeff Zucker, who had said he was planning to leave at the end of this year, may well now stay, according to buzz in published reports. And it’s likely Casey Bloys, who has helped steady HBO Max after a rocky start, will stay right where he is or get another promotion. As for Adult Swim and Cartoon Network, both exist more as brands than cable networks these days — their target demo is streaming — and I see no reason that won’t continue.

Of course, whatever changes Zaslav makes to the cable side of the business is at this point sort of like the undercard bout at a boxing event. What will be much more interesting to watch is whether the new Warner-Discovery decides it’s worth speeding up the collapse of the traditional cable bundle in order to sign up more streaming subscribers. Right now, HBO Max costs $15 per month because that’s the base rate for HBO on cable. WarnerMedia can’t price Max lower without risking cable operators demanding a lower price, too. Similarly, CNN’s live feed and most of its content aren’t on HBO Max because that would breach exclusivity rights with the cable guys.

But even before the merger was announced, Zaslav was dropping big hints that he believes we are very close to the point where companies believe whatever money they’d lose by pissing off cablers could be more than made up by increased streaming revenue. He told a conference last week that the Discovery networks net around $7 per subscriber on cable (including ad revenue), while the average subscriber to the ad-supported version of Discovery+ brings in between $10 and $11. I don’t know how the merger changes those numbers, but I’m guessing it will give Zaslav even more incentive to shift from cable to streaming. Given the breadth and depth of the new Warner-Discovery offerings, it’s not impossible to imagine the company offering consumers the chance to subscribe to an offering that combines HBO Max with linear feeds of all the various cable channels, including CNN and live sports.

3 Big Questions About the WarnerMedia-Discovery Deal