Last week’s executive shakeup at WarnerMedia produced yet another tectonic shift that reverberated across the entertainment industry. Warners isn’t the first major studio to go through a structural change like this (NBCU went through a similar reorg the week prior) and it certainly won’t be the last. Simply put, Hollywood’s core business model and what it expects of its leaders is rapidly and irreversibly changing in a DTC-centric world.
We get it. You get it. The “world is changing” narrative has been discussed to death by every other source of news you read. So instead of continuing on with more of the same, let’s try to shine some light on what WarnerMedia’s corp comms team ISN’T sharing. Little has been said publicly about how Warner’s new strategy will affect the below business units, but we’ve got some informed hunches and insider POV about where WarnerMedia CEO Jason Kilar could go from here.
CNN Will Remain Largely Untouched – In all the talk of promotions and pink slips, one name has been conspicuously absent - Jeff Zucker (WarnerMedia’s Chairman of News and Sports + President of CNN Worldwide.) The immediate reason for this is perhaps a bit obvious. 2020 is an election year that will set a record in political ad spend (est. $6.7B and actually revised up since COVID). A major reorg could undermine CNN’s campaign coverage in what will be a pivotal moment for their business. However, there’s more going on here than ratings. A Vanity Fair source intimated that Kilar and Zucker have discussed creating “a new product, with all the foundations and brand prestige of CNN, that people would be interested in paying money for.” Our hunch is that WarnerMedia is looking to create its own version of the Disney+/Hulu/ESPN+ bundle with standalone, DTC news and sports offerings likely to take shape in the coming months. The question thus becomes - is Zucker the right person to lead this type of strategy? No. But Zucker is infamous for managing up and until a news and sports product gets announced, his job is safe for now.
Warner Brothers Interactive’s Reprieve Is Temporary – Prior to the shakeup, WarnerMedia had begun exploring a sale of its video game publishing unit, Warner Brothers Interactive Entertainment. Lion Tree was brought in to help shop the division at a reported $4B price tag - with Microsoft, Take-Two, EA, and Activision Blizzard each showing preliminary interest. Now, according to a company-wide email, those efforts appear to have been put on hold. The timing of this reversal is interesting – with three major projects coming down the pipe that likely impacted Kilar’s intent to sell. Q4 title Cyberpunk 2077(WBIE publishes developer CD Projeckt Red’s games in the US)is tracking to be one of the top selling games of the year and WBIE just unveiled two new AAA titles centered on the Suicide Squad and the Gotham Knights at yesterday’s DC Fandome event. Nonetheless, these three games won’t be enough to save a division made up of ten studios. AT&T’s massive debt load, combined with industry economics that are still very much hit driven, suggests that cuts are coming. That said, with the explosive revenue growth video games have seen in 2020 it’s unlikely that the conglomerate exits the segment completely. Based on recent performance, Avalanche and WB Games Boston could either be absorbed or sold off piecemeal. The rest of the studios in the portfolio have probably been given a “show us what you got” mandate that will produce a round of “hit or die” games in the next two years.
Otter Media Heads to the Chopping Block – Otter Media’s portfolio of brands - Crunchyroll, VRV, Fullscreen, Rooster Teeth, Hello Sunshine, and Gunpowder & Sky – is a Frankenstein carryover from a 2010s Time Warner investment strategy. While each of these brands boast engaged and growing niche audiences, only Reese Witherspoon’s Hello Sunshine and, to a lesser extent, Gunpowder & Sky seem to complement the core HBO brand. Now with Casey Bloys (former HBO “legacy biz” Programming President) fully in charge of programming at HBO Max and ex-Otter CEO Tony Goncalves pulled into a more senior position, it’s difficult to see who will effectively champion this division’s content internally. In fact, a recent a note from Goncalves on LinkedIn can be interpreted as a reflective farewell to the portfolio. Kilar has already made his intention to sell Crunchyroll known, so expect to also see VRV, Rooster Teeth up for sale and what’s left of Fullscreen’s services business whittled down further by the end of the year.