Newsletter 19. How viewership evolves, media conforms, and finance destroys. Plus a survey finds AI all over publishing, an agent pokes the industry in the eye, an ugly electric truck, plus three people to follow and three books to read.
Three painful lessons from David Zaslav’s Warner Odyssey
I was fascinated to read Jonathan Mahler, James B. Stewart, and Benjamin Mullin’s revealing exposition of the travails of David Zaslav, cable content innovator turned scourge of Hollywood, in the New York Times Magazine (gift link). There is so much to learn from this journey about strategy, unexpected consequences, the financialization of content, and the true cost of every free lunch.
I knew Zaslav slightly when I was a Forrester analyst intensely covering the TV industry in the 1980s and he was in charge of NBC’s cable networks such as MSNBC, USA, and Bravo.
Zaslav then took over as CEO of Discovery. Spurred by the need to assemble the largest possible collection of popular content for streaming, Zaslav merged Discovery with Warner, which at the time was part of AT&T due to the telecom company’s ill-considered content foray. As so often happens, the merger saddled the company with debt, $56 billion in fact, so Zaslav cut, and cut, and cut.
[T]hey laid off hundreds of workers, shuttered or reorganized divisions and suspended or canceled hundreds of millions of dollars’ worth of programming. Anything we don’t think is awesome, Zaslav told executives, stop production right now. Turn the cameras off.
Cuts are the norm after a merger, but Zaslav and [his CFO Gunnar] Wiedenfels were pushing things hard, and in sometimes unorthodox directions. By shelving several nearly completed projects . . . they saved millions in postproduction and marketing costs, as well as residuals down the line, and they locked in hefty tax breaks up front. Like so much of what happened in Hollywood, all this was reminiscent of a Hollywood production — in this case, the beloved 1967 Mel Brooks comedy “The Producers.” There, the producers, Max Bialystock and Leopold Bloom, realized that under the right circumstances, a producer could make more money with a flop than a hit. For Zaslav and Wiedenfels, the money would come from making sure that no one would get to see the shows in the first place.
This was followed by suspending the release of “Batgirl,” a heralded movie for which the filming was already complete, and removing lots of content from the streaming service Max because doing so ended the need to pay residuals to actors, writers, directors, and producers. Soon Zaslav was widely reviled for the path of layoffs and destruction he left in his wake in his attempts to make the merged, debt-laden media company viable.
It’s a saga worthy of a Hollywood production. But there are quite a few revealing lessons here if you dolly back and look at the whole picture.
Lesson 1: Strategy follows consumers, but we don’t always get what we want
Here’s a historical perspective on what happened to TV and how it changed the industry.
- When cable and satellite expanded consumer choice, cable networks proliferated. Profit came from content fees paid by cable operators to channel owners. This led to NBC diversifying or acquiring its way into Bravo, CNBC, SciFi, Sleuth, Telemundo, Trio, USA, and the Weather Channel.
- When DVRs and video-on-demand caught on, viewers learned to ignore the broadcast times and watch on their own schedule. Content owners shifted to amassing huge content collections. Brands of shows (e.g. “Real Housewives,” “Law & Order”) became more important than channel brands like Bravo.
- When streaming became popular as it was built into devices like Roku and Playstation as well as TV sets, content collections needed to bulk up to attract subscription dollars. This led to mergers like Disney buying Fox and Discovery merging with Warner.
- The pandemic slowed movie attendance, thinning the ranks of movies and making Hollywood far more dependent on easily recognized content brands like the Marvel Cinematic Universe. More people stayed home and streamed shows on their huge TV sets.
- But streaming collections were hard to navigate. Tentpole show brands like “Star Wars” and “Game of Thrones” attracted binge viewers, while lesser content became harder to find and less profitable. The “golden age” of content started to recede, viewership narrowed, and profit became scarcer — especially with better post-strike contracts for writers and actors.
Notice that at each stage technology-driven, viewer-focused change forced shifts in the sources of profit. This drove mergers. Mergers created debt. Viewing choices narrowed. And so managers like Zaslav were “forced” to cut way back.
To viewers, streaming seemed like a free lunch — all you could eat for very little cost. But at the other end of that proposition is less money for content. When so much of that revenue is going to debt created by mergers, the free lunch starts to look a lot more repetitive and less diverse.
Lesson 2: Content shifts create creative volatility
Consider what it has been like to work for the company creating movies and television as “Warner Bros” for the last 32 years.
- Warner merges with content company Time-Life to create Time Warner in 1990.
- Time Warner buys Turner, parent of CNN, in 1995.
- AOL merges with Time Warner to create AOL Time Warner in 2000.
- Time Warner spins off AOL in 2009.
- Time Warner spins off its cable operator Time Warner Cable in 2009.
- Time Warner spins off Time, Inc. magazines in 2013.
- AT&T Buys Time Warner in 2018.
- Discovery merges with Warner in 2022.
Most of those mergers turned out to be stupid. But if you worked for Warner trying to create good entertainment, they messed you up.
Each corporate parent had a different strategic perspective. The forces that brought Time and Warner together, and then AOL together with Time Warner, appeared to make sense at the time, but eventually proved problematic. The same applied to the AT&T acquisition and the Discovery merger.
Each merger came with debt and financial pressures. Lots of people lost their jobs along the way. Content is a tough business, but it’s not really because of the challenge of creating quality entertainment to delight audiences, which is relatively constant. It’s all because of the financial machinations driven by ever-shifting strategies.
Lesson 3: Question executives who say “I had no choice.”
Executives always say that changes in the industry drive their strategy. They always say that financialized mergers were necessary to survive. And they always say that the layoffs driven by those mergers were painful, but necessary, for the company to deliver value to its shareholders.
Leaders are supposed to have vision. They’re supposed to drive change, not just react to it.
When strategies drive mergers, investment bankers make money. Executives make money. Producers of creative content — well, it’s hit or miss.
Don’t shed a tear for poor David Zaslav. Save that for the people who lost their jobs in the fallout from the latest strategic foray.
News for authors and others who think
In a survey by Publisher’s Weekly (paywalled link), 45% of publishing staffers said their company was implementing AI. Much of that was in marketing and editorial departments. Next time your manuscript gets rejected, ask if AI was too blame.
The New York Times Magazine‘s interview with controversial agent Andrew Wylie (gift link) will open your eyes about the publishing business. Sample quotes; “The worse the writing, the more susceptible it is to artificial intelligence.” “The course of the money has given the agent the misperception of the true nature of the business, which is that they are employees working for the writer.” As opposed to know-it-alls who think they know better than writers and publishers.
On LinkedIn, Todd Merz reveals in fascinating fashion how once and future OpenAI CEO Sam Altman, with authentic and direct social media posts, completely outmaneuvered his board that was using slow, traditional communications methods.
The Ford F-150 Lightning electric pickup truck is huge and dangerous, not because it has to be, but because it has to look like other pickup trucks to be accepted by buyers. Form isn’t following function, it’s following fashion.
Three people to follow
Craig Le Clair, who has a unique perspective on how automation is changing everything.
Jay Acunzo, a true content creation visionary who knows more about storytelling and profiting from it than anybody else.
Shiv Singh, a technology executive who has seen it all and reveals an insider’s view of how it works.
Three books to read
Delusions of Brandeur by Ryan Wallman (Gasp!, 2019). An amusing and titillating satire of the world of advertising.
Creating Christ: How Roman Emperors Invented Christianity by James S. Valliant and Warren Fahy (Crossroad Press, 2018). How wars between Romans and messianic Jews led to our modern conception of Jesus.
Word Freak: Heartbreak, Triumph, Genius, and Obsession in the World of Competitive Scrabble Players by Stefan Fatsis (Penguin, 2001). Scrabble is fun. But professional Scrabble players are really weird (and amusing to read about).
Have a happy Thanksgiving. Contact me if you’re preparing to write a book in the new year and want to get it right.