WHEN: Today, Wednesday, May 18, 2022
WHERE: CNBC’s “Squawk Box”
Following is the unofficial transcript of a CNBC exclusive interview with Warner Bros. Discovery CEO David Zaslav on CNBC’s “Squawk Box” (M-F 6AM – 9AM ET) today, Wednesday, May 18th. Following is a link to video on CNBC.com:
All references must be sourced to CNBC.
JOE KERNEN: The newly combined Warner Bros. Discovery is about one month into its new era as a global entertainment company. Joining us now in an exclusive interview, his first since the merger closed is David Zaslav, Warner Bros. Discovery CEO. It’s great to have you on set.
ZASLAV: I got all dressed up.
KERNEN: You did.
ZASLAV: For you and Becky.
KERNEN: You did.
BECKY QUICK: I like those suits too.
KERNEN: You look good and the less color and the more sort of just static color, that’s a Hollywood thing. You don’t need to be flashy out there because you you’re you’ve made it. You’ve arrived. And you live out—
ZASLAV: Thank you.
KERNEN: Don’t you live out there now?
ZASLAV: Between New York and LA.
KERNEN: You do. So you came into this at a really interesting point given what we’ve seen with with streaming and Netflix and across the board, Disney all these things that have happened when you came in, but you with that CNN+ move, you already seem to grasp sort of the changing landscape. Is that fair to say, David?
ZASLAV: Well, I don’t know that any of us really fully grasp it because we’re trying to figure out what the consumers want. So when when we conceive this transaction, we just thought the idea of multiple people going into multiple places to get their content was a challenge and to keep it really, really simple. We have the best in entertainment and lifestyle and sports and news and make it all available to the extent that you can in one place in an easy package so everyone in the family can enjoy the product. So and I think, you know, we have great content. And so, as we begin to navigate whether we’re right or whether we’re wrong and how people want to consume content, we have I think the best content.
KERNEN: But you’ve got some synergy promises in terms of what you can save and you’ve also got some debt obviously to deal with and you’ve got this sort of this new paradigm that we’re looking at. All that put together makes me think they might have the right guy because you might not be very nice in certain ways about about things that you need to do.
ZASLAV: You know, you guys know that I’m nice. But—
KERNEN: No, you are nice. You know what I’m saying you know how to run a company with—
ZASLAV: This isn’t about, this isn’t show friends, this is show business. This is all—
KERNEN: You’re not going to blow a lot of money. You’re not going to blow a lot of money chasing—
ZASLAV: No. We’re very disciplined. We invest where we think we can get return. This is a business and it’s a great business and one of the things I think that became quite clear in the last month and a half in this market disruption is Netflix is a great, great company. And it’s been the market leader for many, many years for our business and in in many ways, it’s sort of said to everyone, it’s all about streaming and it’s all about streaming growth. But we’ve always felt that it is about streaming and streaming growth, but it’s also about business fundamentals. It’s about free cash flow, it’s about earnings. And when you look at the Warner Bros. Discovery company, we’re generating real earnings, real free cash flow. We’re, you know, here in the US we have the upfront coming up today and we’re larger than any one of the broadcasters and their portfolios and we go to market with a real good business, our traditional business here in the US. We’re the largest international business and so you know, I think as we look at ourselves, we’re very diversified.
QUICK: If if the, if this is back on your playing field, look, if everybody has to operate in a real business environment like you’re doing you’re you’re playing your game from a position of strength on that. But you just said you’re going to be disciplined. You’re not going to spend the money on this. People have heard that loud and clear. Ari Emanuel was here last week and he said, look, whatever Zaslav and the rest of them say they’re still going to have to pay for content that this is a really big place for it. If they don’t pay up, they’ll miss out on the best content. How do you kind of square up what he’s seeing with your idea that look, we’re going to be disciplined with this and the spend?
ZASLAV: Well, first, I think Ari’s right. This year, we’re spending $22 billion on content. The question is as you look at HBO and HBO Max right now, it’s Casey’s doing an amazing job. Some of the best maybe the best content out there right now, whether it’s “Euphoria” had 25 million people watching on Sunday night, “Gilded Age,” “The Staircase,” the “Game of Thrones” prequel is coming “House of Dragons.” So the question is, you have “Hacks” that just launched if you have “Gilded Age,” if you have “Hacks,” if you have “The Staircase,” if you have “Euphoria,” and you have the biggest TV library and movie library and lifestyle library, you know, how many series do you need at one particular time and as opposed to saying, you know, let me have 10 new series this quarter. It may be that when you have when you have “Friends” and “Big Bang” and all the movies and all of our lifestyle that we only need four great series, or five or six. So we’re going to look at how much do we need to nourish an audience not just let’s throw everything that we have at it and, you know, from a diversity perspective, we have all the different content that we can put in. We can even put news in which we’ve done in Europe.
KERNEN: Well I want to ask you about that because I don’t, I don’t, is there a big market for news on streaming? Does it work?
ZASLAV: I think there is.
KERNEN: You do.
ZASLAV: Well first we have, we have CNN.com, which is the largest digital news business in America.
KERNEN: Right, okay.
ZASLAV: So when people want to get what’s happening in America, there was a shooting, what happened with the election, there’s more people that go to CNN online and the advertisers get the support, be supportive of that. In Europe and in for instance in Poland where we have a very big news business, we put it together with news, sports and entertainment in our offering in our streaming product, our SVOD product, and it reduced churn and it increased subscribers and it’s because the the churn goes down and growth goes up when more people in the home use the product and when they use it more often and news just happens to be a product that people check in on like we check in with you every morning.
KERNEN: You remember the last time we saw you in Pebble and you weren’t able to really comment on CNN+ and what was going to happen. Now we know so I want to, I just want to can you tell us any more about what happened? I guess you want to look forward. You don’t want to look back, but that was a little bit, I don’t know whether it’s surprising but it was very quick. Were you sending a message about how you’re going to manage this company with that and why’d they launch? Were you unable to say anything before then, did they rush it, what what really happened, David? Can you tell us now, now that it’s in the past?
ZASLAV: Well look, I think it’s appropriate that they were running their business, you know, under the laws right until you own a business.
KERNEN: You can’t—
ZASLAV: People that own it get to decide what to do with it. We’re very focused on CNN, we believe CNN is is a critical asset to us. It’s a leader in news gathering around the world. We’re focused on having, you have most of the cable networks, news networks around the world and here in the US, they’re advocacy networks. They’re out, they’re advocacy networks to the left, advocacy networks to the right. We think there’s a real opportunity for CNN—
KERNEN: Remember John Malone said maybe hire some journalists that might that might be the first idea at CNN. Do you have the right journalists there now to cover news that’s not advocacy?
ZASLAV: Look, we have great, well first we have a great, we probably have, we do have the largest number of journalists in the world. We have, we have 81 people in Poland, the Ukraine and Russia right now.
KERNEN: You keep going over there to talk to sell the strengths of CNN. Don’t you, you have strengths here, right?
ZASLAV: We have great strengths here. We think we have more journalists in the US than anyone else. But what we’re going to do with Chris Licht is going to do is, as there are networks here that are advocating right and left, Chris is going to be advocating for truth. He’s going to be advocating for facts. He’s going to be advocating for journalism first. And I think, you know, I think there’s a very big lane for CNN. I think people in America are, they’re looking for a place where people aren’t yelling and giving opinions, you know, and they’re looking for more news and so that’s what you’ll see from CNN. On CNN+, there was no message it was a business decision. We looked at it and we looked at the data, the number of users they had spent an enormous amount of money trying to sell an independent product. The subscribers weren’t there, the users weren’t there. We looked at it together. We had a chance to look at all the data and when we looked at the data, it was, the business wasn’t there.
KERNEN: You fired McKinsey? Those numbers were a little they were they were a little pie in the sky would you say what was possible? Did you send a message by by by cutting your losses and saying this is a way it’s going to be for the rest of the business. When I need to something, I’m going to do it with a—
ZASLAV: If we saw good numbers, and we thought that there was a real market for an independent news service for $6, we’re, you know, we we would have driven that as a real business. Philosophically, we thought having been in business in Europe now for the last 10 years in direct to consumer that simple for consumers is easier. And so we tried independent sport, we tried independent products, and in the end we landed that putting it all together in one product with more value was what worked best.
QUICK: Does that mean putting Discovery+ and HBO Max together?
ZASLAV: We will. We will come to market with one product.
QUICK: Everything, CNN mixed in.
ZASLAV: All, we gotta decide what we do with CNN. But there will be some of CNN news’ product on there. They’re already, they’re already is and we’re going to make an announcement today on more that will be on there. But we will have one product and I think it’s going to be really compelling because it’s, Netflix has a great product. Disney has a has a terrific product. But the diversity of content that we have, whether it’s the the great HBO content, the great library content, “Friends,” “Big Bang Theory,” the great movies, the biggest movie library and then we have food, HG, Discovery, Oprah, Chip and Joanna Gaines and when we put that all together, I think we’re going to see something that will appeal to everyone in the family and we’ve gotten some hints on it. HBO Max is doing great and has tremendous appeal. Huge audiences come in. We don’t get that kind of audience at Discovery+.
KERNEN: Quality. Makes a difference, yeah.
ZASLAV: 20 million people. And on in Discovery+, we have very low churn and we’re still doing very nicely so together we think we’re gonna have a great product.
QUICK: Andrew’s just got a question.
ANDREW ROSS SORKIN: Hey David. As one of the great dealmakers of our time and I I want to get your perspective on just what the rest of the chessboard looks like at a conference where that was actually the conversation at dinner last night in terms of further consolidation in this industry as everybody was chasing or at least thought they were chasing a Netflix like multiple. Now that that multiples no longer there and actually some prices of things have actually come down, how you think the rest of it shakes out? We just saw Warren Buffett’s Berkshire Hathaway buy a piece of of Paramount Global. What do you think regulators would allow, wouldn’t allow at this point in the ballgame?
ZASLAV: Well, thanks. Good to see you, Andrew. First it’s actually a year ago yesterday that that we announced our deal and we were able to get the deal done and approved in less than 11 months. And so for us, the process was quite effective. And it’s exciting that we’re able to get it done and be in a position to go to the advertising market now. Our number one focus is how did the assets that we have work for us in in the in the marketplace that we’re facing today, and we’re the largest maker of content with Warner Bros. Television and Warner Bros. Motion Pictures. We have together 100 million subscribers about between Discovery and and Warner as Warner Bros. Discovery. And we have a great traditional business around the world with free to air channels and cable channels and sports and news and so I feel like strategically we’re quite complete and we’re probably the most complete and diversified media company in the world. And so, you know, for us, we’re going to be head down, let’s drive this business. Let’s get a single product into the market. Let’s show how much free cash flow that we can generate. And let’s show that we have a diversified real growth business. That’s real. I do think that the world is changing that, you know, if you look at at the leader in our business as Netflix, they were leading and we the the currency was subscribers, not free cash flow. And so as the market determines how they’re going to value different media companies, it’ll have a real impact on what people chase. From our perspective, we’re not chasing anything. We’ve always been very clear, free cash at Discovery, free cash flow is king. We want to drive real growth, get more people spending time with our content on all platforms and if we do that and we make real money, that ultimately the market will give us, you know, substantial value for that.
KERNEN: You’re a, you’re a movie mogul now too. Should should Adam Aron go full into just lithium mining or do we keep the theaters? You were recently named on the board of Cinematheque, what Americans, does that mean you see the value of the big opening and is that going to continue?
ZASLAV: Look, I’ve said from the day that we closed this, that we announced this transaction, we have Warner Bros. Motion Pictures. It’s 100 years old in six months. There’s nothing like the big screen and you go with your friends, the lights go down and you look up at that big screen—
KERNEN: Right, the popcorn.
ZASLAV: And it’s it’s magic.
KERNEN: The fake butter, there’s a lot—
ZASLAV: It changed the culture, it changes the way people see things. It changes the way people see themselves. And that’s not going away. The last year—
QUICK: But is that theatrical release window going to be shorter?
ZASLAV: I think it’ll be shorter but look, what we’ve learned so far is when Batman came back to HBO Max after 45 days, it was a very strong driver and the more research, we see this idea of going direct to streaming, I never thought it made sense. Why would you collapse a great business?
QUICK: But a shorter window is—
ZASLAV: A shorter window works because if you you know if you market what you do aggressively for these titles, and then you tell somebody that this is important and they hear word of mouth. For instance, we’re about to do that, do this on “Elvis,” which we’re going to launch soon. Then when it hits the streaming service, the feeling is it’s something special. And so I think you’ll see some of the streaming companies saying I gotta get into the motion picture business.
KERNEN: Would you—
ZASLAV: So I think what’s old is going to be new again and we have that that’s a big strength—
KERNEN: Have you had a conversation with, Alan Horn is a friend of yours isn’t he, have you had a conversation—
ZASLAV: I love Alan.
KERNEN: Have you had a conversation with him about he’s 79 that doesn’t mean anything anymore, does it. I think the president’s, would you bring him back?
ZASLAV: The gift of the last 11 months is I haven’t been able to I wasn’t able to do anything until this deal closed but I was able to talk to a lot of people. There’s a lot that I don’t know. There’s a lot that we as a company don’t know and so I spent a lot of time with Alan. I spent a lot of time with with with with most of the old leadership at at Warner together with the with with with the industry. I spent a lot of time with Bob Iger. What did he do well, and I had a real chance to kind of get a sense of also what mistakes did they make? You know, now we were going to have to make it happen. I’m very confident. We’ve been in there for 30 days and we see even more opportunity. You know that it’s it’s messy, but we expected it to be messy, but the messier it is, the more cleanup we could do and the more we can grow this business.
QUICK: You’ve guided the street to leverage of two and a half to three times within 24 months. How do you get there and is that an easily achievable goal? Is that tough to hit?
ZASLAV: We have a lot of businesses that are generating a lot of value. We just got in so we need to now kind of level set. We weren’t really able to see a lot now we’ve seen a fair amount, but it’s probably going to take us a little a little longer as we get to our first our next quarter earnings, we’re going to lay out a real plan. Here’s how we’re coming to market. Here’s what we found. It’s better than we thought. Some of it’s worse than we thought maybe it’s you know, we will we’ll do a full level set on where we are, you know, by as we come to market in the first—
QUICK: I just want to clarify you said it’s probably going to take a little longer. Did you mean a little longer before you announced more plans or a little longer than 24 months to get to that leverage?
ZASLAV: No it’s going to be a little longer until we have full clarity of exactly what we’re going to do and when.
