David Zaslav compares Warner Bros. Discovery rebuild to painting a mural: ‘It is messy’

Warner Bros. Discovery stock (WBD) dipped slightly in afternoon trading on Tuesday after CEO David Zaslav commented on the future of the struggling media giant, comparing the company’s merger challenges to painting a mural.

“We’re painting a mural on the side of a building, and all kinds of stuff is falling off,” Zaslav said in an interview with RBC Capital Markets analyst Kutgun Maral on Tuesday. “It looks messy, and it is messy. It’s really hard and it’s really challenging.”

The executive described the economy as “weak” and the advertising market as “very weak” while recognizing the uncertainty heading into 2023.

“I can’t predict what will happen, but we’re in the process of really restructuring how we go — the cost structure of our company, the efficiency of our company, how we operate in this new environment,” he said, reiterating the company’s $12 billion earnings forecast for 2023.

While addressing recent headlines of slashed production budgets and shut-down projects, along with the removal of several titles from the HBO Max platform, Zaslav revealed that HBO lost $3 billion last year after spending nearly $7 billion on content over that same time frame.

“We have the best IP in the world,” he asserted. “We need the best structure and we’ve got to spend money where it’s working.”

Zaslav doubled down on maintaining a content strategy that focuses on quality over quantity, referencing popular tentpoles from Batman and Superman to Harry Potter and Game of Thrones.

“It’s really not about how much — it’s about how good,” he said, adding that the company’s diversified role in the space has helped drive operations, calling the business an “arms dealer” in the industry.

“There’s a lot of bidders for the content,” he said, calling out Warner Bros. Discovery-produced shows like Apple TV+’s “Ted Lasso” and ABC’s “Abbott Elementary.”

“It’s the diversity of this company that makes us strong… Optionality and the ability to move content around in order to drive free cash flow and EBITDA is one of the things that I think is the greatest opportunity at this company,” Zaslav explained .

Warner Bros. Discovery CEO David Zaslav attends NRDC’s “Night Of Comedy” Honoring Anna Scott Carter at Casa Cipriani on September 20, 2022 in New York City. (Photo by Santiago Felipe/Getty Images)

‘Drive the hell out of DC’

Zaslav revealed that filmmaker James Gunn and producer Peter Safran are close to finalizing a “bible” when it comes to the future of the DC franchise.

“Part of our strategy is to drive the hell out of DC,” the executive revealed, adding, “It’s one of the biggest opportunities at this company.”

The executive went on to explain that Gunn and Safran will “focus on our strategic advantage: The great content that we have that everyone in the world knows, and focus on telling those stories.”

He added that “over the next few years, you’re going to see a lot of growth and opportunity around DC. There’s not going to be 4 Batmans.”

Part of that strategic vision will include exclusive theatrical windows, rather than the direct-to-streaming offerings — something the CEO is vehemently against.

“There’s an ecosystem of economic return when you open something in the theaters,” he stated. “That idea of ​​direct-to-streaming was just a way to try and drive subscribers in order to drive share price. We’re not doing that.”

Actor Dwayne Johnson poses for photographers as he arrives for the world premiere of the film 'Black Adam'  in Times Square in New York City, New York, US, October 12, 2022. REUTERS/Mike Segar

Actor Dwayne Johnson poses for photographers as he arrives for the world premiere of the film ‘Black Adam’ in Times Square in New York City, New York, US, October 12, 2022. REUTERS/Mike Segar

‘Advertising market right now is very weak’

Zaslav struck a bearish tone when it came to advertising, describing the market as “weaker than it was during COVID” before adding: “That could change quite quickly. Right now, this is a pretty big miss of the whole Christmas season.”

Many media companies have leaned on live sports to offset challenges, but Zaslav said Warner Bros. Discovery will be “very disciplined” amid the rising cost of sports media rights.

“You’ll see us being very, very disciplined on sport,” he said. “We have enough without doing a new deal with anybody. I’d like to do a deal with the NBA, but [it] has to be a deal for the future. It can’t be a deal for the past.”

Warner Bros. Discovery’s current deal with the NBA costs about $1.2 billion per year and is set to expire after the 2024-25 season. Zaslav suggested that the company does not necessarily need to renew the contract, calling sports a “hard” business.

Artist Sono Kuwayama paints a mural on a boarded-up restaurant's takeout window as part of neighborhood project in the Bowery neighborhood of Manhattan in New York City, New York, US, June 17, 2020. Picture taken June 17, 2020 .REUTERS/Brendan McDermid

Artist Sono Kuwayama paints a mural on a boarded-up restaurant’s takeout window as part of a neighborhood project in the Bowery neighborhood of Manhattan in New York City, New York, US, June 17, 2020. Picture taken June 17, 2020. REUTERS/Brendan McDermid

“With sport, we’re a renter — that’s not as good of a business,” he said. “We don’t have to have the NBA. And if we do a deal on the NBA, it’s going to look a lot different.”

Besides the NBA (the company’s most expensive contract), Warner Bros. Discovery also splits NCAA games with CBS, in addition to maintaining deals with the NHL and playoff baseball, which cost a reported $200 million and $470 million, respectively.

On Tuesday, the company laid off around 70 staffers working in sports across brands including Turner Sports, Bleacher Report, and studio operations in Atlanta.

“Our reality is we must evolve to position WBD and our Sports division for long-term success against an environment that includes a challenging macroeconomic forecast, as well as headwinds from the accelerated changes in our media industry and business model,” WBD Sports CEO Luis Silberwasser wrote in an email to staff.

Alexandra is a Senior Entertainment and Media Reporter at Yahoo Finance. Follow her on Twitter @alliecanal8193 and email her at alexandra.canal@yahoofinance.com

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