The blockbuster merger of Discovery and WarnerMedia closed

The blockbuster merger of Discovery and WarnerMedia closed on Friday, putting many of the biggest names in movies, TV and news under one roof.

Discovery, the medium-size media company that began as a small cable network in 1985, has completed something once unthinkable: assuming ownership of a fabled Hollywood company that controls Batman, Harry Potter, “Sex and the City,” “Game of Thrones,” CNN and March Madness.

Discovery Inc. and WarnerMedia closed their megamerger Friday afternoon, adding a new behemoth to the entertainment industry. The two companies will combine television, movie and news operations that draw revenue of nearly $50 billion, forming one of the biggest media companies in the country.

The decision by AT&T, WarnerMedia’s parent company, to spin off its entertainment division and merge it with Discovery — in a deal announced in May — will be felt throughout the media world in the months to come. It could push smaller competitors to hunt for deals to beef up in size. And it means that rivals like Netflix, Disney, Amazon and Apple now have a new ferocious competitor for streaming dominance.

The job of making the merged company a success falls to David Zaslav, the garrulous 62-year-old veteran cable TV executive who has been running Discovery for 15 years. He will take over as chief executive of the new company, which will be called Warner Bros. Discovery in a nod to the Hollywood studio started nearly a century ago.

“Today we begin to write an exciting next chapter for both companies as Warner Bros. Discovery, a pure-play storytelling company that brings together the most cherished content, brands and franchises,” Mr. Zaslav wrote to his new employees in an email late Friday afternoon.

Mr. Zaslav’s Discovery has been no slouch. The company owns cable networks like Food Network, HGTV and TLC and has the rights to an enormous array of nonfiction programming ranging from the highbrow (natural history programming like “Serengeti”) to low (“My 600-lb. Life” and “My Feet Are Killing Me”).

But now Mr. Zaslav is entering a much bigger, and more rarefied, position in the Box Office entertainment world. Unlike his more understated predecessors at AT&T, he has been bursting with enthusiasm for the last year while coming closer to taking over a powerhouse that will include HBO, CNN, TBS, TNT and the huge film and TV studios of Warner Bros.

He will move from New York to Los Angeles, and has spent months holding court with Hollywood power players at the Polo Lounge in Beverly Hills. He has been featured in a glossy photo spread inside the former home of Robert Evans, the Hollywood producer whose mansion Mr. Zaslav recently added to his already impressive portfolio of personal real estate. Mr. Zaslav, one of the highest-paid chief executives in media, earned a compensation package valued at $246.6 million last year.

“I believe we’re going to be the best media company in the world,” he said after the deal was announced, with characteristic showmanship.

The challenges, however, for Mr. Zaslav and Warner Bros. Discovery will be significant.

With the deal complete, Discovery assumes $55 billion in debt, a sum that the company will be under pressure to begin paying down immediately. Discovery has also vowed to find $3 billion worth of savings between the two companies, which will almost certainly wind up in layoffs, particularly for overlapping business functions.

And Discovery, which has a long tradition of making low-cost nonfiction programming, has indicated that it will not necessarily spend at the breakneck pace that has become de rigueur in entertainment.

“We plan on being careful and judicious,” Mr. Zaslav told investors in February. “Our goal is to compete with the leading streaming services, not to win the spending war.”

He pointed out that HBO’s recent run of scripted dramas, including “Euphoria,” “The Gilded Age” and “Succession,” seemed more than sufficient for the network.

“Would HBO be doing a lot better if it had three more really successful scripted series at this moment?” Mr. Zaslav said in February. “It’s not clear that they would be.”

Mr. Zaslav, who will convene a forum next week for Warner Bros. Discovery’s roughly 40,000 employees, has already started to overhaul the company’s leadership. Jason Kilar, the chief executive of WarnerMedia for all of two years, and the Warner Bros. chief, Ann Sarnoff, along with a number of corporate officers in charge of communications, revenue, human resources, technology, legal and finance, were on their way out ahead of Discovery’s takeover.

Mr. Zaslav has tapped many of his longtime lieutenants for key positions in the new company, and has knocked away some reporting structures. WarnerMedia’s key content executives, Casey Bloys of HBO and Toby Emmerich and Channing Dungey of Warner Bros., will all report directly to Mr. Zaslav.

The deal brings yet another leadership change at WarnerMedia, which has endured a major corporate restructuring in the last few years, and whipsawed through stormy ownerships in the last two decades, including one led by AOL in the 2000s, as well as AT&T, its most recent owner.

AT&T bought WarnerMedia (formerly Time Warner) in 2018 for $85.4 billion with promises to bring streaming video to millions of mobile phones. But under an enormous debt burden and facing intense competition in the wireless industry, AT&T quickly backtracked from its ill-fated foray into entertainment, and has vowed to pivot back to core businesses related to fiber and 5G.

“What an embarrassing chapter for what was once one of America’s most storied companies,” one analyst noted last year.

John Stankey, the chief executive of AT&T, said in a companywide email on Friday that spinning off WarnerMedia and bowing away from the entertainment business was “one of the most difficult decisions of my life.”

“I am sure you aren’t surprised that it came with a fair amount of anxiety, disappointment and concern relative to the changes it would trigger,” he wrote. “All considered, I remain confident we have set the right path.”

The creation of Warner Bros. Discovery could prompt changes among existing media companies, forcing smaller companies like Paramount to find a way to get bigger.

“There’s Disney, HBO Max, Netflix, Amazon and Apple — that’s five,” said Michael Nathanson, a media analyst, pointing to the leading streaming services. “You don’t want to be in position six, seven or eight. At some point, they’ll say, ‘We have to find a dance partner.’”

The biggest question will be what happens to HBO Max and Discovery+, the merging companies’ streaming services. Initially, the two could be sold as a bundle, but over time they will be brought together into one giant streaming service, Mr. Zaslav told staff on Friday.

HBO and HBO Max, which consists of new television series and movies, as well as an impressive lineup from the Warner Bros. library, have more than 70 million subscribers; Discovery+ has more than 20 million.

Even brought together, that pales next to Netflix, which has more than 220 million paying subscribers, most of them outside the United States. HBO Max has only recently expanded into foreign territory, though Discovery has built a robust international business.

“A new giant is born when they prove they have international scale,” Mr. Nathanson said of Warner Bros. Discovery. “I don’t think Discovery content on HBO Max in the U.S. is a needle mover. But because international is such uncontested territory, they can have more impact outside the U.S.”

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