New era begins at Warner Bros.

Discovery Inc. takes over as part of a $ 43 billion merger

LOS ANGELES » By 2018, almost every golden- age Hollywood studio had been conquered by outside forces.

Metro- Goldwyn- Mayer had been tossed between disruptive owners for decades, never to fully recover. Columbia Pictures was sold to Coca- Cola in 1982 and then offloaded to Sony in 1989. Universal had weathered five outside takeovers in the span of 21 years. Paramount Pictures had been strip mined for cash by an ailing Sumner Redstone.

Warner Bros. alone stood as Hollywood’s citadel, a beigewalled protectorate of filmmakers run by executives with institutional Hollywood knowledge. Then AT& T drove into town. The Texas phone giant took over Warner Bros. in June 2018 as part of a bid to “bring a fresh approach to how the media and entertainment company works,” as Randall L. Stephenson, then AT& T’s CEO, put it at the time. As it set about building a Netflixstyle streaming service, AT& T slashed and burned through the Warner Bros. ranks and installed leaders with little Hollywood experience. They cut costs, surprised stars with abrupt distribution decisions and pushed Warner to start behaving as more of a technology company and less of an entertainment one.

“The telephone people had no understanding of Hollywood — and no passion for movies,” Robert A. Daly, who ran Warner Bros. in the 1980s and ’ 90s, said. “It’s the same mistake outsiders always make. It’s show business, show business, show business. They always forget that.”

This month, AT& T handed off Warner Bros. to Discovery Inc. as part of a $ 43 billion merger.

The 99- year- old movie studio, home to Harry Potter, Batman

and Bugs Bunny, will now head in a different direction — back toward its traditional sweet spot as an entertainment company, or at least Hollywood’s newest mogul has vowed. David Zaslav, Discovery’s CEO, will run the new corporation, Warner Bros. Discovery.

Already, Zaslav has vanquished tech leaders brought in by AT& T, including Jason Kilar, who made his name at Hulu and Amazon, and Andy Forssell, who came up through Oracle and Hulu. Also departing is Ann Sarnoff, who AT& T hired to run Warner Bros. in 2019 despite limited Hollywood experience. During her tenure, Sarnoff reworked the Warner Bros. shield logo, dropping the gold trim in favor of AT& T blue. Meanwhile, Zaslav restored the gold.

Some Hollywood players never changed their acid position on Sarnoff — she’s not one of us — with film folk sniping about her delay in relocating to Los Angeles from New York. ( With the pandemic ebbing, she bought Matt Damon’s old house in November, spending roughly $ 18 million.)

In contrast, Zaslav is already deep into a lavish restoration of Woodland, an estate in Beverly Hills where Robert Evans, the show business legend, lived for decades. Evans was known for orchestrating a creative rebirth at Paramount in the 1960s and ’ 70s, delivering era- defining triumphs like “The Godfather” and “Chinatown.”

“Success is about creative talent, in front of the screen, and behind the screen, and fighting and fighting to create a culture that supports that creative vision,” Zaslav said when announcing the takeover.

This month, Zaslav talked about his aspirations to “dream big and dream bold” in an email sent to his new employees. “Hallelujah,” one Warner Bros. manager said in a text message afterward. Another executive at the studio, speaking by phone, said she was going on a “wild” shopping spree to celebrate, adding, “Hollywood is back, baby.”

Others were not so sure. Zaslav qualifies as an entertainment insider, having run Discovery, a cable television behemoth, for 15 years and working at Nbcuniversal before that. But he has little film experience. The merger also comes with breathtaking debt — some $ 55 billion — that will have to be paid down, even as content costs rise. Zaslav will need to make difficult decisions about how to allocate resources. How much money should be spent on movie production and marketing? To what degree should the studio make movies for exclusive release in theaters? Should the focus shift even further toward supplying films to HBO Max, the company’s streaming service?

Under Sarnoff, Warner Bros. slashed its annual theatrical output by nearly half and built a direct- tostreaming assembly line.

Hollywood as a whole finds itself in a similar state of mind: optimistic about the future of movies one minute, pessimistic the next. There is evidence that theaters are finally bouncing back from the pandemic. Last weekend, the Pgrated “Sonic the Hedgehog 2” took in a huge $ 71 million in North America, the biggest opening total for a Paramount movie since 2014.

At the same time, one of Hollywood’s most bankable directors, Michael Bay, sputtered last weekend. His crime thriller “Ambulance” ( Universal) arrived to just $ 8.7 million in ticket sales.

Some analysts liken the future of big screens to Broadway — still alive, but relegated to a corner of the culture. “The pandemic caused a phase shift in movie consumption patterns with audiences having moved decisively to preferring streaming services over the theatrical experience for all but the biggest, loudest, PG- 13est films,” Doug Creutz, a Cowen analyst, wrote in a March 25 report.

The result is a disoriented movie business. Run toward streaming. No, wait — we’ve got to keep theaters alive. Run the other way.

Now, run both ways at the same time.

The discombobulation at Warner Bros. started in 2016. That is when AT& T announced that it was buying the studio’s parent company, Time Warner, for more than $ 85 billion. The deal sat in regulatory limbo for 20 excruciating months, limiting the ability of Warner executives to make bold strategic moves. Moreover, Netflix was spending billions during that period to become the preferred home for film directors and marquee television producers. Amazon Prime Video was also making inroads.

Zaslav’s catch- up strategy will soon emerge. To formulate it, he has spent months reaching out to people like Daly; Sherry Lansing, the retired Paramount superpower; Robert A. Iger, who retired as Disney’s executive chairman in December; and Alan F. Horn, who ran the Warner Bros. Pictures Group from 1999 to 2011, then led Walt Disney Studios for nearly a decade.

Their brain power was undoubtedly invaluable. But meeting with them also sent a clear message to Hollywood: I respect your culture.

“For an industry of its substantial size, Hollywood is surprising insular,” Horn said. “The creative community, in particular, needs to feel your respect. Artists need to know that you understand them and will do your absolute best to protect them.”