Happy New Year!
A reminder I wrote three essays before the holidays:
I also offered five predictions for 2023 in this month’s opinion essay for The Information “2023 Will Be Another Difficult Year for Traditional Media”.
Some housekeeping:
I will publish PARQOR's three to four trends for Q1 2023 next Monday.
I will be traveling the latter half of next week (January 9th), and plan on mailing on Monday and Wednesday.
Friday mailings will be no longer be weekly in 2023. I will published them on an as needed basis to respond to any newsworthy stories.
Two follow-up thoughts “clicked” into place yesterday about one of my predictions for the media marketplace in 2023: “Investors will remain disappointed in corporate leadership. Disney’s Bob Iger and Warner Bros. Discovery’s David Zaslav will bear the brunt.”
The first thought “clicked” after Warner Bros. Discovery CFO Gunnar Wiedenfels spoke at Citi's 2023 Communications, Media & Entertainment Brokers Conference. Citigroup Managing Director Jason Bazinet spent part of the discussion highlighting the execution risk of Warner Bros. Discovery’s plans to merge HBO Max and discovery+ into a single app, and “rebuild the whole thing.” He described the initiative to Wiedenfels as “something that sounds easy to do, but actually seems pretty complicated when you think about it.” In doing so, he’s effectively asking, “are you sure this is a risk you want to take with shareholder dollars?”
Wiedenfels’ responded with an argument for a single app built upon the premise that“the experience [with HBO Max] is not where it needs to be”. Bazinet asked him to clarify this answer: “Sorry, when you say the experience is not where it needs to be, is that just in terms of the user interface, is it in terms of sort of software flexibility that the consumer has within the… ?”
Key Takeaway
As seismic shifts continue in media's business model paradigm, there is a growing question of whether the C-Suite needs to be digital natives.
Total words: 1,400
Total time reading: 6 minutes
Bazinet is asking about product development, and Wiedenfels answered, in part:
“I don't want to go too deeply into the sausage making, but it’s both sides. It's also I think the product team as well. Let's just say it's not – it's not manageable as efficiently as you would like a modern day technology product to work. But more importantly from a consumer perspective, and we've made great progress but you know given this example before of [sic] the end card where you did not – you know after finishing a season did not get the recommendation for what's next. So we've got this bifurcation of the greatest content in the world, not getting Five Star ratings for content, but then a subpar consumer experience.”
What “clicked” for me while reading this exchange is that Wiedenfels is very clearly not a digital native. Meaning, his terse responses have little of the logic of language of product development.
This contrasts with the more detailed responses of his peer Spencer Neumann, CFO of Netflix, which we heard last March at the Morgan Stanley Technology, Media & Telecom Conference. For example, here’s how Neumann described their gaming strategy — which also required changing Netflix's interface — to a similar audience of media and entertainment investors:
"And now we're kind of learning into what are the games that our members enjoy. We know our members play -- a very significant portion of our members play games around world, but now they have to play our games. And so we're starting to get a sense as to what that looks like in terms of retention and hours played and trying to get insights into how they value that versus film and TV content. So it's a learning year. We've put 14 games, I think, on the service. They'll be kind of -- we expect a multiple of that by the end of this year as we continue to roll it out, and we'll add new kind of services for those game players. But this is -- again, it is a multiyear build."
Neumann conveys an ease in speaking about Netflix’s product development, and Wiedenfels does not.
I think *this* is what Bazinet’s skeptical question was hinting at: if building a new app is indeed the right strategy, and streaming is the future of Warner Bros. Discovery, then given the risks does Warner Bros. Discovery have the right management team to manage those risks?
Because Wiedenfels is clearly not fluent in the language and logic of product development, software development or even the consumer experience. And therefore, if the comparison to Spencer Neumann is a fair one — and I think it is— then Wiedenfels is the wrong manager to lead Warner Bros. Discovery into a more digital future.
Notably, investors have not reacted that way — the stock is up 20% since the meeting, largely because he told them the cost-cutting is over and has been successful. But looking to the longer term, Bazinet’s question is a fair one, and I'm not sold Wiedenfels will ever have the right answer to it.
The question for Iger
The archetypal digital native executive in legacy media is Disney’s returning CEO Robert Iger.
The optics of his track record of navigating digital disruption and driving growth has been great: embracing distribution on the video iPod before it launched, acquiring Pixar, acquiring BAMTech (for Disney+), acquiring a controlling stake in Hulu via the 21st Century Fox acquisition, and launching a streaming strategy that nominally has more subscribers than Netflix (236.7MM) , but substantively has about 150MM to 160MM when you exclude triple-counting across ESPN+, Hulu and Star subscribers.
But, as I wrote last month, “the long-term vision for Disney that Iger set two years ago now seems dead in the water.” There’s a nuance to this point: it’s not that Disney's streaming strategy has failed. Rather, core assumptions of the strategy have been proven wrong, and both Disney and its shareholders were stuck with a $1.5B loss in Disney’s FY Q4 2022 as a result.
Iger now confronts his own version of Jason Bazinet’s implicit question to Gunnar Wiedenfels: is he sure that solving for these failed assumptions is a risk he wants to take with shareholder dollars? Is he the right manager to solve these problems, and does he have the right management team in place to help him?
Because as great as the pre-pandemic optics have been for Iger, his track record in digital in two key competitive areas — gaming and YouTube — has been subpar. [NOTE: I addressed a version of this question last month in “Is Bob Iger Bringing The Right "Magic" For Disney's Future?”]
Disney shut down the Disney Interactive Studios division —its attempt to build a gaming business under Iger — in 2014. It has since had a successful licensing business, with Star Wars IP succeeding for Electronic Arts (I wrote about it in May). But it failed in part because "There wasn't really much — if any — institutional knowledge regarding video games there." Moreover, a licensing model allows third parties like EA to aggregate, own the data for and monetize gaming consumers.
Iger's Past with YouTube & Games
As for YouTube, I have heard and read two explanations why Iger’s $675MM on Maker Studios failed in 2016. First, I’ve been told by former executives that there was not operational buy-in for having a cohesive YouTube strategy. In a piece for Digiday, Sahil Patel highlighted how a “Star Wars”-related show produced by Maker Studios couldn’t get approved for distribution within Disney “because Maker didn’t go through the proper channels at Disney.”
Second, Maker Studios failed in large part because Disney saw value in “Maker as a marketing and distribution engine for its existing assets” — the company wasn’t as interested in creating a digital studio business for YouTube.
But, Disney needs growth, and gaming and YouTube are where Gen Z and Gen Alpha are increasingly spending their time. In November I wrote about EA CEO Andrew Wilson telling investors at the Goldman Sachs Communacopia Conference that Gen Z and Gen Alpha consume media across four behaviors: "play, create, connect, and share stories.” Disney streaming apps only offer a lean-back viewing experience, and do not seem anywhere near Netflix's gaming offering or EA's broader ecosystem offering.
Disney’s stock is up 10% over the past five days, trending back towards pre-Q4 2022 earnings prices. The overall sense is that Iger has the confidence of investors. But, as a tongue-in-cheek Deadline piece over the holidays noted in a quote from an agency lead (“Bob Iger’s Christmas Carol & The Ghosts Of Past, Present & Future”), one of Iger’s “greatest accomplishments may be sidestepping his missteps. The billions in debt that came with the Fox purchase, going all in on streaming, hemorrhaging TV and ESPN viewership, and the succession fiascos alone would have killed any other CEO.”
So, I don’t know if the question is whether we should bet against a “teflon” Iger. Rather, I think the media marketplace is transforming in ways that are shifting the paradigm so radically that, like Gunnar Wiedenfels, Robert Iger may not be the right manager for the moment.