Buyers Have Many Questions As Warner Bros. Discovery Opens For Business

The $43 billion WarnerMedia-Discovery merger crossed the finish line late Friday afternoon, just under 11 months after the deal was first announced. Now, as the newly-combined company, Warner Bros. Discovery, opens for business, the real work begins. And while marketers now know the makeup of the new leadership team, they still have many questions about how the fledgling company will function and how they will navigate it. “It’s a lot of unknown, but we’re used to unknown. We’ve seen a lot of mergers happen over the past five years, and so we are expecting it to be a little bumpy at the beginning,” said Carrie Drinkwater, chief investment officer, Mediahub. Unlike Discovery’s merger with Scripps in 2018, which involved “very similar houses of brands” with overlapping audiences, said David Campanelli, chief investment officer, Horizon Media, its union with WarnerMedia brings “a very different mix of properties to bring under the umbrella, which is good, because I think the more variety that entity has, the better set up long term they are.” Discovery, WarnerMedia Officially Complete $43 Billion Merger However, that mix will be much more challenging to the sales team. “Selling the NBA is a much different thing than selling Discovery ID,” said Campanelli. “So putting those things together will probably take some time.” Which is why marketers expect a rocky transition as the new ad sales team takes shape. “When you bring together a mixed product, you have to figure out what the roles are, what the pieces are and who plays well where,” said Drinkwater. “It’s unknown, but it’s happening, so we have to be optimistic that it will, eventually, be best for our clients and best for our products that we need to push.” One major question about the merger was answered just hours before the deal closed: Friday morning, the company named Jon Steinlauf as its chief U.S. advertising sales officer. Steinlauf, who held that same title for Discovery, received the top job over WarnerMedia ad sales chief JP Colaco, who will be leaving the company. But marketers are also eager to hear who will fill out the rest of Steinlauf’s ad sales leadership team. “Seeing the people they put in place will be very telling,” said Drinkwater. “We know how each company operates. We know their understanding that their capabilities with content or data. And so understand who is put into positions will be very telling on how the future will be.” Creating a combined upfront Steinlauf now has just five weeks to prepare for the company’s combined upfront-week presentation, which UPDATE: will take place on Wednesday, May 18 at Madison Square Garden’s Hulu Theater, in place of WarnerMedia's previously-planned event, the company said Monday afternoon. As for the upfront negotiations themselves, marketers have been told that the team will be “full-steam ahead” as a single ad sales entity, said Campanelli. “Everyone’s been as honest as they can be, saying, we’re going to figure it out, we’re going to try to make this upfront as smooth as possible,” said Drinkwater. “They have made it very clear, there will not be any disruptions. I do believe this upfront will be business as usual—but there is no ‘usual’ business anymore. So I am not concerned right now.” While the company’s bulkier ad sales portfolio could put marketers at a disadvantage compared to previous negotiations, there are potential opportunities for them as well. “The thought is often that a larger sales entity has more leverage, and there’s certainly truth to that, but they also have more mouths to feed, too,” said Campanelli. “When you have a lot of properties of varying importance and/or quality, it can create opportunities where some of the lower-priority networks from a sales standpoint are high-priority networks for us to buy. If we can make those pieces fit, it can be a successful negotiation on both sides.” Analysts, meanwhile, are eager to see how Steinlauf’s new ad sales team, in whatever form it takes, will “use some of their new leverage as a bigger portfolio,” said MoffettNathanson analyst Robert Fishman. “It is still going to be sports-focused? What genres are they going to lean into? Will they be driving pricing higher on the CPM side?” A new streaming strategy While the upfront is top of mind for marketers, they are also seeking clarity on Warner Bros. Discovery’s future streaming plans, and what they mean for each former company’s top service: HBO Max and Discovery+. “There’s also many unanswered questions that we are still waiting to find out, with the new combined strategy,” said Fishman. “They’ve alluded to what the streaming strategy will be, but we don’t have any real details around that yet.” CFO Gunnar Wiedenfels confirmed last month that both platforms will ultimately be consolidated into a single service, but offered no details about when and how that might occur. “From a marketer perspective, whichever is going to drive the largest audience, largest engagement, most ad exposure opportunities for us, the better. And from a consumer standpoint, the more content you get for your dollar, the better, and the more likely you are to sign up for a particular service,” said Campanelli. The bigger platform offering will be an advantage for marketers using data for advanced audience targeting on the streaming service. By layering data onto the expanded streamer, “it will allow us a greater platform to be able to execute on that level, not only will I be able to reach my high-value audiences, but then I can also see where they are. So they actually educate me and my clients [about] the viewing behaviors of programs that I would never have thought to look at,” said Drinkwater. However, there is also the question of whether a single platform can adequately support so many disparate brands from both WarnerMedia and Discovery. “Within that environment, how did it keep the uniqueness for each brand and not get them completely lost in the shuffle? For example, it’s probably hard enough for Magnolia to stand out within Discovery+ as is, and now you’re competing also with Game of Thrones, and truTV and whatever else,” said Campanelli. Don’t forget about linear While the company’s long-term focus is on streaming, the bulk of revenue from both WarnerMedia and Discovery still comes from linear networks, and there are many questions about the company’s plans on that front. “How is the streaming strategy going to impact their linear businesses, especially around their Turner portfolio? Aside from the new CNN+ launch, we don’t know yet what their intentions are really going to be,” said Fishman. “Clearly, linear today is still the most significant driver of profit and cash flow for the combined company. So we remain focused on that piece of the business as well.” In her new role as chairman and chief content officer, U.S. Networks Group, Kathleen Finch will oversee more than 40 of the company’s U.S. networks (not including HBO and CNN, which will be run by Casey Bloys and Chris Licht, respectively)—and buyers question whether that sizable portfolio will be trimmed. “When there’s so many moving pieces, do all of the smaller networks maintain in a combined world?” said Campanelli, who wonders if some channels could get combined or dropped. All told, the new Warner Bros. Discovery team has a lot of decisions to make as they combine the two companies on the fly, during at one of the busiest times of the year, as upfronts begin. “The timing isn’t ideal. It’s better now than if it was in May or June—but it would also have been better in January,” said Campanelli. “I do think it’s a pretty tall order for those guys to get everything in order. But both sides have been through it now, so I think they’ll be able to manage it relatively well.”