Its product has never been more critically or financially successful. Why is it auctioning itself off?
The Golden Globe nominations came out on Monday, and two films dominated: One Battle After Another with nine nominations and Sinners with seven. On the television side, The White Lotus led with six nominations.
These productions have something in common: They are all products of Warner Bros. Discovery (WBD), which has also dominated the box office this year. A record seven straight Warner Bros. releases debuted with more than $40 million in receipts in their opening week this year, the most consistent run of success in movie history.
This all begs the question: Why did a critical darling and commercial juggernaut publicly auction itself off, and why is it now caught in a bidding war between Netflix, with which Warner Bros. agreed to a merger last week, and Paramount, which made a hostile takeover bid on Monday? Why is a successful movie and streaming studio, whose finances are going to look better once it sheds its dying cable channels as planned, so desperate for a new corporate parent?
Understanding why demonstrates the pathology of the modern economy, Wall Street’s drive to consolidate, and why Americans feel helpless in an age of corporate power.
THE SIMPLEST ANSWER FOR WHY Warner Bros. wants a merger is to cover for other failed mergers. The history is long and complex, but here’s a short version: Warner Communications was formed out of the historic Warner Bros. studio and other assets in the 1970s, and merged with Time, Inc., to form Time Warner in 1990. Time Warner merged with AOL, known famously as the “worst merger in history,” in 2001, leading to a decade of downsizing and spin-offs; Time Warner was eventually left with Warner Bros., HBO, and the Turner network of channels that included CNN, TNT, TBS, TCM, and others. AT&T then bought Time Warner in 2016, surviving a protracted challenge from the Trump administration. If that wasn’t the worst merger in history, it was the second-worst, leading to a spin-off within a couple of years and yet another merger with Discovery Media. We know how that worked out, since WBD is on the block once again.
These mergers created a horrific financial legacy: $53 billion in debt as of 2022. Each was attractive in its time to executives and corporate synergists, but bad for the actual business. The creative talent managed to thrive despite the mismanagement, building on the reputations of HBO and the Warner Bros. studio. But the debt left the company in constant crisis. And the real driver of the merger wave was not the promise of creating a successful end product, but money. David Zaslav, who only took over WBD three years ago, is promised up to a $500 million payday if a sale closes, because his contract allows his 21 million share options to immediately vest in that circumstance.
Alongside this, we have the disruption of the entertainment business in general. The industry moved headlong into streaming without a business plan for how to make it profitable. It retained legacy cable assets that now exist as zombified entities that play an endless loop of reruns and old movies. That devalued the WBD conglomerate even more, as eyeballs drifted from its cable offerings.
Before the merger announcement, Warner Bros. was planning to follow in Comcast’s footsteps and split off its cable channels into a separate company. The proposed Netflix deal is only for the Warner Bros. studio, HBO, and HBO Max; Paramount wants the whole shooting match, presumably so they can MAGA-fy CNN in the same way they did CBS News, or perhaps because David Ellison is ridiculous enough to think he can reverse time back to 1986 and make a cable network conglomerate work.
