Warner Brothers Discovery (WBD 1.37%) began life as a stand-alone, combined company after a long, drawn-out merger. Its stock price has been volatile and the brand new shareholder base consists of many AT&T (NYSE: T) shareholders who received shares in the spinoff and are evaluating what to do with them. As part of the deal, AT&T shareholders received 0.24 shares of Warner Brothers Discovery for each share of AT&T they own. This setup means that AT&T shareholders owned 71% of the new company when it began trading. Given this backdrop, the stock will almost certainly be choppy in the near term, but over the long term it has a lot of potential.
David Zaslav has served as the CEO of Discovery since 2006, and will serve in the same role with the newly combined entity. Zaslav led the launch of the Discovery+ streaming service, which now has 22 million paid subscribers. He elevated Discovery into a player on the global stage by expanding internationally, and helped Discovery turn into a juggernaut in the world of unscripted content.
Zaslav already has prior experience integrating new brands into the Discovery empire, adding HGTV and the Food Network into the fold with the acquisition of the Scripps Networks in 2018. He partnered with Oprah Winfrey in a groundbreaking deal that created The Oprah Winfrey Network, which grew into a successful media empire in its own right. Now Zaslav is in control of a massive library of scripted content and intellectual property, ranging from Batman and Superman to The Sopranos to CNN, and it is up to him to use it effectively for shareholders. Zaslav has a lot of levers that he can pull in order to unlock the potential of this compelling mix of franchises.
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Zaslav at the wheel of DC
Zaslav now presides over some of the most iconic content collections out there with brands like HBO and DC Entertainment. This intellectual property will get a fresh look from new executives who will explore new ways to unlock value. There is already talk of Warner Brothers Discovery "overhauling" DC Entertainment. DC boasts a wealth of intellectual property that includes some of the world's most popular superheroes like Batman, Superman, and Wonder Woman, but some critics feel that it has fallen behind Disney's (NYSE: DIS) Marvel in recent times, so a new strategy could be just what it needs.
Zaslav reportedly views films from the DC Entertainment catalog like 2019's Joker as an example of the success that the company can have by expanding the spotlight to ancillary characters from DC properties, which expands the universe and creates the opportunity for new franchises. Joker was an inarguable success, grossing over $1 billion at the box office . The ripple effect here is that a successful new franchise can become a gift that keeps on giving -- while Joker was originally intended to be a stand-alone film, a sequel is reportedly in the works. Creating content that people are willing to go out and pay money to see is difficult -- but once a studio already has a successful franchise in place, the reward is that it can then create spinoffs and sequels that already have an established audience.
While recent films like The Batman were successful at the box office, Zaslav and his team believe that a more overarching, vertical strategy for the entire library is needed, and that characters like Superman can be revitalized. Aquaman was another hit with over $1 billion in revenue at the box office, and a sequel is slated for 2023. If Zazlav and his team can successfully leverage the success of these films and uncover some other hidden gems to create new franchises from other DC properties, in the same manner that Marvel has with its universe, the potential is exciting.
Changes at CNN
Another segment that Zazlav has already talked about tweaking is cable news outlet CNN. Zazlav feels that many news networks have become "advocacy networks" as opposed to strict "news-gathering" operations that strictly report the news. Zaslav's team reportedly plans to transform CNN into more of a "hard news" outlet with less opinion-based journalism. CNN's ratings have been lackluster for several years, and subscriptions and ad revenue are projected to decline this year, so there is certainly the potential for a fresh set of eyes and a reset of strategy to restore the network to its prior heights. Zaslav has been described by the Los Angeles Times as a "relentless change agent", and he and his team will not be slowed down by any legacy thinking. For example, management has already shut down CNN's streaming service, CNN+.
Zaslav's show
Zaslav certainly has a challenge on his hands in integrating two large but different media conglomerates in Warner Brothers and Discovery, but the uncertain road ahead is also a potentially exciting one for investors. Zaslav has proven to be a shrewd operator over the years at Discovery and he has many options for how to to best utilize well-known brands like CNN, HBO, and DC Entertainment. Zaslav has the wherewithal to pull the right levers and steer Warner Brothers Discovery shares in the right direction.
