Warner Bros. Discovery (WBD) President and CEO David Zaslav communicated his hopefulness to resolve negotiations with striking Hollywood writers and actors' unions. The entertainment studio-streamer has saved over $100 million during this strike, while also reporting an earnings miss this quarter. The Hollywood Reporter Media & Business Writer Alex Weprin details the content crisis WBD is facing ahead of 2024 amidst the writers and actors' strikes. "Warner Bros. Discovery, Sony, Disney, [they're] all testing technology," Weprin says on studios adopting AI and posting AI-related job openings, much to the chagrin of the striking Hollywood unions who are set to return to the negotiating table on Friday.
Video Transcript
DAVID ZASLAV: Our goal is to tell great stories, stories with the power to entertain, and when we're at our best, inspire, with stories that come to life on screens big and small, and we cannot do any of that without the entirety of the creative community. We're hopeful that all sides will get back to the negotiating room soon and that these strikes get resolved in a way that the writers and actors feel they are fairly compensated."
- That was Warner Brothers Discovery CEO David Zaslav on the company's earnings call earlier today discussing the writer and actor strikes. Now, the company reported around $100 million in cash savings in the second quarter as a result of the strikes. The CFO of the company also saying if the strikes run through the rest of the year, they can expect several $100 million of upside to free cash flow guidance.
For more on this, we turn to Alex Weprin, the "Hollywood Reporter" media and business writer. Alex, good to talk to you today. So free cash flow in the short term, good for the company. Investors like that. But what does that pipeline look like for Warner Brothers and how long can they hold out in the strike?
ALEX WEPRIN: Yeah, it's a paradox, you know? In the short term, they're going to have all this extra cash that they can use for other purposes. To pay down debt, to acquire other content like sports or more reality shows. But in the long term, they do need new scripted TV shows and movies in order to conduct their daily business. They're in the business of making these shows, and eventually a lot of this cash is going to be needed to fund those productions, so it's a problem.
It's a good problem to have because it's good to have extra cash, but at the same time they need to manage it. They can try to deploy it now, but eventually they're going to have to put it to use creating new content, and they're going to have to think about what it means down the line. In terms of content, you know, I think they're probably OK for a couple of months, but the longer the strike goes on, if it goes another month or two, we could begin to see really negative effects, especially in 2024, which is when a lot of these series and movies are set to be released that are currently paused. So, really, that's when you'll start to see the impact on their bottom line.
- Alex, I want to ask you about AI in the context of content, particularly-- I mean, that's been one of the sticking points in terms of negotiation and concerns when it comes to SAG-AFTRA. What are you hearing about what Warner Brothers is doing or incorporating when it comes to content and AI?
ALEX WEPRIN: So Warner Brothers Discovery, like all the major studios, they're beginning to play around with technology and see what it's capable of. Now, of course, it's used for things like algorithms like to recommend new shows or movies, it's used in special effects. You know, if you saw the new Indiana Jones movie, you'll see a de-aged Harrison Ford that was helped in part by AI. But at the same time, you know, the potential to maybe write scripts or to create digital actors, that's something that the writers and actors are really concerned about, and I think the studios are just at the very beginning stages of beginning to see what it's capable of.
So they're hiring for a bunch of different positions. Some of them may not really be relevant to the guild at all, like a customer service AI, but others, like when you think about the possibility to use it to create written content or digital content, that's something they're really worried about. Warner Brothers Discovery, Sony, Disney, they're all testing the technology. They're exploring the boundaries of what it's capable of, and at the same time the guilds, they want to lock in rules to make sure that it can't be used to take their jobs.
- Yeah, Alex, there were several reports this week that pointed to the job postings out there AI-related, some offering as much as $900,000 a year. So the concern among the unions, you know, AI has been one of those that have been top of mind, but is there an irony here that in some ways, as they try to negotiate and sort of protect their jobs from AI, that studios, that could actually accelerate the transition to AI for studios?
ALEX WEPRIN: Well, that is-- that's a problem, right? Because, you know, at the same time, you know, the technology is still very nascent, right? It's not capable of creating an entire film or TV show yet, but that is a concern down the line. At the same time, these studios are all looking desperately to save money. They're looking to cut costs. That's why there are all these layoffs in the entertainment business throughout the year.
And so AI is a technology that can really be used for that purpose to cut costs, to reduce the total number of jobs that a company has. And you're right. You know, if the strike drags on, these companies may get more aggressive in looking to see if there are other ways they could use the technology to reduce the total number of job opportunities or to cut costs in other ways.
DIANE KING HALL: Speaking of cutting costs, Alex, one of the things that's been that's been talked about besides layoffs is spinning off, selling units. One of the properties that's been talked about is CNN. What did you hear of what are you hearing with regard to that piece of Warner Brothers Discovery?
ALEX WEPRIN: So in the last year or so there's been a lot of talk about potentially selling or spinning off CNN. I'm hearing right now that's not on the table. That being said, you know, as time goes on, anything is possible, and certainly if someone approached Warner Brothers Discovery with a really aggressive deal to buy CNN, I think they'd take a hard look at it.
They're in primarily the entertainment business. CNN is a news property. So, you know, it fits into that larger portfolio in the sense that entertainment and news and sports all tend to live side by side, but, you know, if someone made an aggressive offer, I think they would absolutely take a look at it and sell it.
It's been-- you know, other private equity firms, other media companies, they've poked around CNN. They've tried to see if it's available and see what-- you know, if they can get into the books a little bit. But right now it doesn't seem like any sort of sale is imminent.
- Finally, Alex, we are expecting the WGA to meet with the studios tomorrow. It's the first time they'll actually be at the table, sort of meeting to discuss a meeting. But what are you hearing about how close the two sides are and where the leverage lies?
ALEX WEPRIN: So you have to keep in mind that they haven't really spoken in three months. So, you know, they're not starting from scratch, but it's going to be baby steps. This is going to be the first meeting. They're going to lay the ground rules. They're going to begin the process of returning to the table.
Last I heard, they were still very far apart on a number of key issues, including AI, including compensation for residuals and streaming. So there's a lot of ground they need to cover. At the same time, the fact that they're returning to the table is good news. Before any deal can be struck, this is the first step.
Same thing with the actors. At some point the studios are going to sit down with the actors and they're going to begin talking about a deal. Everyone expects there to be an agreement at some point. Warner Brothers Discovery today said they're kind of planning on a September return, but the first step is to get to the table, and so we'll see what happens from this week's meeting.
- Yeah, September return sounds pretty optimistic there. Alex Weprin with "The Hollywood Reporter", it's good to talk to you. Appreciate the time.
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