PARQOR is the handbook every media and technology executive needs to navigate the seismic shifts underway in the media business. Through in-depth analysis from a network of senior media and tech leaders, Andrew Rosen cuts through what's happening, highlights what it means and suggests where you should go next.
In Q4 2022, PARQOR will be focusing on four trends. This essay focuses on the themes, "Linear channels seem doomed. What happens next?" and "There is no such thing as a CTV household, what happens next?"
I have had good debates on Twitter this week about recent comments from Disney CEO Bob Chapek, Warner Bros. Discovery CEO David Zaslav, and Warner Bros. Discovery CFO Gunnar Wiedenfels on the next NBA deal.
Zaslav came out strong at the RBC Capital Markets Technology, Internet, Media and Telecommunications Conference 2022 : “I like the NBA. We have another couple of years on the NBA. And Adam is a friend of mine for 20 years. But we're going to be very disciplined. We don't have to have the NBA.”
That was followed two days later by Wiedenfels telling Morgan Stanley's European Technology, Media & Telecom Conference: “ whether it's sports or any other content investments, we'll always make decisions on the basis of the best available information and with the best interest of our shareholders in mind. That's how we're going to be approaching deals. We're not going to go after trophy assets or pay ridiculous prices just because we want to have something.”
Both contrasted with the more measured take from Chapek on Disney’s earnings call: “We would love to be in business with the NBA. But again, we are going to do it in a fiscally responsible way and seeking multi-platform rights. So, we feel really good about our position going forward with the rights that we have already got and the one or two that are still in play.”
The negotiation with the NBA is set to be concluded a year or two from now. So interpreting these statements is concededly speculative. But, at the same time, Warner Bros. Discovery has some real financial and strategic challenges: in the RBC interview, Zaslav also said that the soft ad market means “it's going to be hard” to its $12B earnings forecast if the ad market “stays this soft for next year.”
My contrarian read — the one which led to the debates — is two-fold.
Key Takeaway
Warner Bros. Discovery management sound like they are preparing shareholders for an outcome with the NBA of “we're breaking up with them before they break up with us.”
Total words: 900
Total time reading: 4 minutes
1. Negotiating Position
First, there is a difference between managing investor expectations by being “fiscally responsible” (Disney) and or by promising to go after “trophy assets or pay ridiculous prices just because we want to have something” (WarnerMedia). One is a measured promise that leaves the door open, and the second expresses a strength in conviction that suggests the door is closing. Zaslav’s “We don't have to have the NBA” only reinforces that read.
I’ve been offered a few takes that Zaslav’s position is a negotiating tactic. But I believe a strong-armed tactic like that only makes sense when there’s leverage. And I think changes in the ad marketplace pose an existential threat to Zaslav’s roadmap of Warner Bros. Discovery. It’s not just the recent softness in demand that seems poised to continue in 2023.
It’s also that Procter & Gamble has just blown up a key part of Warner Bros. Discovery’s business model: “brand advertising spend seems to have bought a one-way ticket from linear to digital.” The onus now is on Warner Bros. Discovery to prove its ability to aggregate streaming audiences at scale and also to monetize it with sophisticated ad targeting. All legacy media companies and Netflix — but not Disney — have yet to solve for the latter
2. The NBA & Microsoft
The National Basketball Association (NBA) recently leveraged its partnership with Microsoft Azure to overhaul its global application into a one-stop shop for basketball fans around the world, promising a data-driven personalised experience that aggregates team and league content, as well as integrating live streaming.
It’s not only personalization, as the original press release for the partnership announced: “The platform will re-imagine how fans engage with the NBA from their devices by customizing and localizing experiences for the NBA’s global fanbase, which includes the 1.8 billion social media followers across all league, team and player accounts.”
An interview back then by Stratechery’s Ben Thompson with NBA Commissioner Adam Silver and Microsoft CEO Satya Nadella highlighted two pain points: first, young fans are “watching a lot less conventional television and the programs they watch, they often watch for shorter periods of time”; and, second, their direct-to-consumer relationship is currently limited by outdated technology.
Specifically, Silver believes “we’re fairly limited in terms of artificial intelligence, understanding what fans really want, customizing the program to their needs, customizing highlights especially.”
Back then, my takeaway from this interview back was the NBA has a sophisticated vision for the future of its distribution. It needs to capture younger audiences across platforms and devices.
Both the NBA and Microsoft read like they were two years ahead of P&G in terms of solving for reach. And that means Warner Bros. Discovery
And, in this light I think Warner Bros. Discovery has made two mistakes:
It’s tossed out the playbook of WarnerMedia management, which had a similar fan focus to the NBA's and Microsoft's strategy; and,
It’s merger took on enormous debt that, with some 20/20 hindsight, may not have been the best outcome for the company or for shareholders.
So, unlike Ben Thompson, who wrote positively about Zaslav this week, I think his vision for the future of Warner Bros. Discovery is the wrong model for this market shift. And as we saw at the RBC conference, I think we're starting to see cracks in that sales pitch.
Ultimately, I think that Zaslav and Wiedenfels are preparing shareholders for an outcome with the NBA of “we're breaking up with them before they break up with us.”