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WBD CEO David Zaslav has to 'magically save $3 billion,' analyst says

Recode Media's Peter Kafka joins Yahoo Finance Live to discuss Warner Bros. Discovery CEO David Zaslav's plan to cut $3 billion in costs and what that entails for the HBO parent company.

Video Transcript

[AUDIO LOGO]

- Another big win for "House of the Dragon." The ratings for the second episode of the "Game of Thrones" prequel drew 10.2 million viewers. Now that's a 2% increase from 10 million viewers that the premiere episode raked in. Now unsurprisingly, the show was renewed for a second season last week. Guys.

- The unparalleled success of "House of the Dragon" gives Warner Brothers Discovery CEO David Zaslav an enormous win when he dearly needs it. Like a new football coach though, with an old QB, Zas as he's known, inherited the "Game of Thrones" franchise. What's the game plan for this throwback studio head? We're joined by Peter Kafka from "Recode Media."

Peter, good to see you. I'm tripling down on the sports analogy here. So if he wins a ring with dragon, he gets no credit for that. What's the play call that brings Zaslav a title?

PETER KAFKA: Oh, that's a good one. He's got a magically saved $3 billion sometime in the next year. That's-- that's a big one, and he's got to get the stock price up. When Time Warner was sold to AT&T originally back in 2016, it was worth about $85 billion. I think Warner Brothers Discovery, which is a merger of basically Time Warner and Discovery is now something around $30, $35 billion.

So the Wall Street's saying, the combined assets of your company and what was the premier media company in the world are now worth a lot less. What can you do to make it more valuable?

- Well, Peter, we've been talking about all the changes that have already happened in just a couple of months. Certainly a number of cuts have been happening, certainly a strategic shift has been happening under David Zaslav. What would you say-- what else, I guess, should we expect down the line because $3 billion in cost cuts we're still a far ways away from that?

PETER KAFKA: A lot more cuts. People will get laid off throughout the fall from what I'm told. I think it's a lot of bodies that they have to process, and they have to find ways to save money. As it's been reported, they're likely to sell-- they're likely to strike a big deal with Amazon that will bring in some cash that will allow Amazon to sell subscriptions to HBO Max/Discovery. And that will bring in a lot of short term money. But again, Wall Street has mostly priced that in.

And longer term it's not so sexy, but David Zaslav has to prove that he can run this combined media company in a way that both produces some kind of profit right now. Right now, HBO Max loses money while keeping his existing business, that cable business, Discovery, and the existing WarnerMedia channels Turner, TNT, afloat and generating a lot of cash. It is a hard challenge to accomplish, and most big media companies have struggled trying to keep their old existing businesses alive while creating new ones.

- So when you look at the cuts he's already made, and you look at what are considered the jewels of the crown for Warner then, where do you think the rest of the cuts are going to start coming from and going forward?

PETER KAFKA: Well, if you look, they were very careful. Even though they had cuts at HBO Max, they have made a point of saying we're keeping most of HBO and HBO Max intact. There's going to be a lot of stuff that won't make headlines. It'll be less sexy. They'll combine a lot of operations.

But there is some head scratching where he is going to get some of the savings. You can get some initial one time savings by killing off things like CNN Plus or a "Batgirl" movie, and those will generate headlines as well. But the rest of it is going to be sort of hard to come by, and that's why folks think that eventually, even though he says he doesn't want to, he may have to sell some assets, whether that's something like gaming, which Warner had previously considered selling, or CNN, which the company insists over and over. It does not want to sell. I know people are still knocking on the door interested in buying that property in particular.

- Well, it's interesting because you just can't cut your way to a title, right? When he was at Discovery, he kind of built the franchise on "Chip and Joanna Gaines," targeting middle America. When Zaslav puts his signature on WBD, what is it?

PETER KAFKA: No one knows. That's the question. I mean, you know, he came-- he had the good fortune to come to Warner after Hollywood was really tired of the previous management owned by a phone company run by technologist Jason Kilar. He came in and said, I'm old school. I love media. I love-- I love talent. I'm old school. You guys are going to love it.

Truth is he's a-- he's a lawyer by trade, he's not a creative type. And Discovery has done well over the years, but it's a reality TV programmer. It is yet to prove that he's got any sense of how to handle sort of traditional Hollywood projects. So there's an open question there.

And we just don't know. I mean he-- again, he may just have to sort of manage this for the near term and hope that someone else comes and acquires Warner Brothers Discovery. And there was speculation about that from the get go as soon as this deal was put together, there would be eventually other deals either. It would acquire other things to get more bulk or would get sold to someone else who wants more bulk. And that may be the end of the story in the end.

- Peter, all the changes that have happened at HBO Max, David's just mentioning "Chip and Joanna Gaines" going after middle America. Certainly, we have seen a number of high profile films getting shelved back row being one of them. What do you think this tells us just about David Zaslav's strategy, and also what's necessary for him to be successful here when we take a longer term view?

PETER KAFKA: Well, his main strategy right now has been to say to Hollywood and Wall Street. Everything that the last guy did, I'm going to undo. So he was all in on streaming, he was bringing movies to streaming as soon as they were in theaters same day. We're going to get rid of that. We're going to back out of that. He cut-- he cut ties with Amazon. I'm going to reestablish ties with Amazon. We're just going to rewind the clock back. And maybe that's a good strategy for the near term.

And we don't know what the long term strategy. And by the way, he's not the only one with this problem. As everyone knows, Netflix was king of streaming until late last year when Wall Street decided it wanted profits as well as growth. Disney now is struggling with the same thing. It went all in on streaming. Its streaming properties lose a ton of money. Eventually, it has to convince Wall Street that it can figure out how to stream and make money. Everyone is in a version of the same boat, but Warner Brothers Discovery has a particularly tough hand to play.

- I love this quote from the verge on Zaslav. "He's not here to better enrich our entertainment landscape. He's here to make money. Can he make any money? It's CNN, in particular, pivoting to the middle."

PETER KAFKA: CNN makes about a billion dollar a year in profit. So he'd really have to screw it up to not make money. The question is, is there an audience for the middle, or is there an audience for what CNN says it wants to do, which is sort of more sober reporting, less talking, less fighting? I don't know.

The reason that CNN has been programming the way it's been programming is not just because of Trump. Prior to Trump, it was chasing after things like poop cruise coverage and disappearing airplanes that it speculated may have been swallowed by a black hole. It's hard to get people to tune in to news day in and day out when nothing particularly exceptional is happening.

Again, that is a programming problem. It's probably not going to be his problem. It's going to be Chris Licht, the guy who's running a CNN right now. But it's a naughty one, and I don't know that the politics matter that much except, maybe optically for advertisers, and in particular John Malone, who's an investor in Warner Brothers Discovery, who would like the company to reprogram CNN.

- Certainly, we're going to have to wait and see how this all plays out. But certainly, someday we are going to continue talking about. We've talked about so much here at Yahoo Finance. Will be interesting to see about how some of these decisions shape the company here moving forward. But Peter Kafka, great to have you of "Recode Media." Thanks so much for taking the time.