CNBC Exclusive: CNBC Transcript: Warner Bros. Discovery CEO David Zaslav Speaks with CNBC’s “Closing Bell” Today

WHEN: Today, Wednesday, April 12, 2023   

WHERE: CNBC's "Closing Bell"

Following is the unofficial transcript of a CNBC exclusive interview with Warner Bros. Discovery CEO David Zaslav on CNBC's "Closing Bell" (M-F, 3PM-4PM ET) today, Wednesday, April 12^th. Following is a link to video on CNBC.com: https://global-deals.online/video/2023/04/12/new-subscriber-content-will-bring-churn-down-warner-bros-discovery-ceo.html%3C/a%3E.%3C/p%3E%3Cp%3E%3Cstrong%3EAll references must be sourced to CNBC.

SCOTT WAPNER: Warner Bros. Discovery announcing its new Max streaming service today combining content from HBO Max and Discovery Plus. Our Julia Boorstin live in Burbank, California right now for an exclusive interview with Warner Bros. Discovery President and CEO David Zasloff. Julia, it's all yours.

JULIA BOORSTIN: Scott, thanks so much, really appreciate it. We're very excited to be here today on the Warner Bros. lot for the big announcement of Max, it's coming on May 23. And the big headline is that it's going to cost $16 a month, which is the same cost as HBO Max, even though this will also have so much Discovery content. You've said so many times, David, that you are focused on profitability, why does it make sense to charge the same amount and give more content?

DAVID ZASLAV: First, we want a really seamless transition. We have a very significant business with HBO Max right now with subscribers that love it, and they're paying $16. To provide more value to those subscribers and have a seamless transition, I think will be really helpful to us in terms of number one, secure the strength and the power that we have in the market right now. In addition, one of the big issues with this business for everybody is churn. And by by increasing the amount of content we have on the platform – content for kids, content for families, nonfiction content, food, home, the biggest motion picture and TV library – by putting that whole bouquet of content, we think the broadest array of content available, that the churn will come down. So it'll be a significant amount of economic gain for us, just by subscribers feeling more nourished, happier, less churn, more people in the family using it, and that's the basis of a healthy subscription service.

BOORSTIN: So in addition to that $16 ad free version, you're gonna have a lower cost version with ads. Do you have any plans to have a free ad supported version and how concerned are you about an overall ad contraction, especially when there are more ad players in the market such as Netflix?

ZASLAV: Well, HBO Max has a nice amount of ad light subscribers already. So Max starts off with a nice base. And 9.99, when you look at the marketplace, the traditional marketplace around the world, there are people that are willing to pay a fair amount of money to get premium and have it be ad free. Then there's people that are willing to pay less but they'll take – they need to accept advertising, which is sort of like basic cable around the world. And then there's a big population of people that only want free that are never going to pay. And so it's important for us as the largest provider of content, we have the biggest TV library and motion picture library in the world, that we make our great content available to everyone. So this was a big day for us with launching Max on the 23rd where we will have a fantastic service at 16. We're also going to have the ad light at 9.99 and it'll be robust. We've started to offer AVOD channels with other providers, but you will see in an AVOD service from Warner Bros. You will see a Warner Bros. TV that's free. And that will allow us to capture everyone. Our objective is we think we have the greatest storytelling, the greatest content, we want everyone to see it. But right now, we think there's a tremendous amount of opportunity and growth for us to take advantage of what we already have, which is a fair amount of scale, a really high quality service on both sides – Discovery Plus. Discovery Plus is very low churn and people love it. And HBO Max, you know, if we add those two together, we think we're gonna get better retention.

BOORSTIN: So we will stay tuned for details on when we'll get that free ad supported service. But one thing that's notable here is you talk about the breadth of the content but you don't have live news and sports included in this new Max service. What are your plans in terms of sports? Are you going to be bidding for NBA rights to include in Max? And what about live news? When are you going to – or will you include CNN in this?

ZASLAV: Well, first, this is really going to be a fabulous entertainment, full spectrum service. So we're going to take this out and we think we're going to do very, very well with it. But the good news is that the future has a lot of uncertainty for all of us and we're trying to figure out exactly what do consumers want and where do they want it. The fact that we're a leader with CNN, a global leader in news, and the fact that we are a leader in sports, where we have the NHL, we just finished with March Madness. We have baseball playoffs. We're going to be carrying hockey right through to the Stanley Cup. And then we have the NBA for another couple of years and hopefully for long term. So that's artillery. You know, in a battle, ultimately, I think the best content wins. And so the fact that we not only have this extraordinary amount of great entertainment content with Max, as we see what consumers want, we can say okay –and we've done it in Europe, we've moved news in where people go more often. In a number of markets we've put sports in. So we'll see over the next few months, and we are building an attack strategy. You will see news and sports deployed to drive our overall streaming domestically and around the world because we haven't and we're a leader. And because live news and sports is powerful.

BOORSTIN: So more changes coming. Now I have to ask you about the comments that we heard today on CNBC on "Squawk Box" from Warren Buffett. He said he doesn't like the streaming business. It's a fundamentally challenged business. And I also have to point out that Bob Iger, CEO of Disney, has said that undifferentiated entertainment is another challenge area. These are two men who are both invested in this space –

ZASLAV: Two great guys. Great Americans.

BOORSTIN: Warren Buffett and Paramount. And I think the question here is, how do you avoid those pitfalls of either being undifferentiated or just the overall challenges of streaming?

ZASLAV: Okay, first, there's probably, we are more differentiated probably than anybody. We have Harry Potter, all brands, we have D, we have the whole DC portfolio. We have Hanna-Barbera, Looney Tunes, Game of Thrones, we have brands, Food, Home, Discovery, and HBO itself. So when people want to navigate what we have, we're not a huge morass of content. It's very easy to curate, which is very important. You can curate through our characters you can curate through our brands, and you can curate through the content that we love. So I think that we have very differentiated content. We have tentpole content that people love everywhere in the world. To Warren's point, it's not an easy business and we're in the middle of a transition. We've been really dramatically moderating our losses. Last quarter, we look, we significantly reduced and we were down to a loss of only 200 on our streaming business, but we have a very big advantage. We have a huge library of content that's owned and paid for, TV library of content, traditional and we have our whole no fiction, nonfiction library, global library, we have 10 channels of content we've been producing for 30 years in language all over the world Home, Food, Discovery, Animal Planet, and of the content that people consume, 80% of people spend an awful lot of time with nonfiction. So we start with a cost base that's much lower. And then we have all these brands that people love. Plus, we're disciplined. I was the first one with our leadership team that said we want to be in the streaming business, but we're also the biggest maker of content. We make a lot of money selling TV to other players. We're also in the traditional media business. We're in the gaming business. And so for us, we're we're a content company. We're a storytelling company. This is a very big day for us with Max and we believe that having a streaming service above the globe is critical and which is the final point that it's a very it's a more difficult business, if you're playing really primarily in the US, think about the value creation by the fang companies. That value was created was is because they were above the globe. They built the product and they were able to deliver it everywhere in the world and every language that's what we're gonna do. We're just getting started. And I think that will give us scale and a real opportunity to have this be a big business. And we've said that we'll be breakeven in '24 and that we'll make a billion dollars in in the overall segment of streaming by '25. So we feel really good about it.

BOORSTIN: Scott?

WAPNER: David, it's great to have you—

ZASLAV: Hi Scott.

WAPNER: On the program here today. I so much appreciate you being with us. You mentioned being a bit of a first and I do feel in some respects like you were a trailblazer if you will in this new movement of subs at any cost is not happening anymore, and others have sort of followed that mentality. I guess my question is, is that a moment in time view because of the kind of economic cycle that we're in? Or is that going to be a permanent thing or the next time we're in the you know, that next big upturn if it's going to be back to an arms race?

ZASLAV: Well, look, I think that you and I have been around enough that we've seen these cycles. In the 90s, it was clicks, and eventually, well, we're valuable users. And ultimately, I'm a free cash flow guy. I built Discovery by driving free cash flow. How much money are we really making? We're creating content. We're driving EBITDA and free cash flow. Last year, in nine months, we generated three and a half billion dollars of free cash flow. You know, we're driving great stories. We want great talent, but ultimately, if we're not making money on subs if we don't have any ARPU, we're not helping ourselves and we're not helping shareholders. And it was very clear as we looked around the industry that they would chant, they were chasing a phantom effectively, and we did something important last year. We brought these two companies together and there was a lot of talk of synergy, but that really wasn't what we were fighting for. We were fighting to say, what does this company look like to have a chance to be really successful for the future, whether it's HBO, Warner Brothers Television, our traditional businesses, so all the changes that we made fighting to get all of our motion pictures back in the theater where we can where we can delight audiences, open those those movies on Main Street, but also make more money because they're more valuable in the theater, and then they're more valuable on HBO Max, but we restructured our company. We made a lot of decisions, some of them may turn out to be wrong. But that's in the past now. Now we're off and running. It's not just with Max, we're on offense, and we're a pure content company. And we have all these tools because we have all this content that people love. So I think going back to this idea of subscribers, you know, I'd rather have 100 million subscribers or 100 million, 150 million subscribers, and have it be really profitable than try and stretch for some big number, and in the end, lose money. And the good news is consumers show you what they love. We take a look at what people watch on Max and we can see exactly what they like and exactly what they don't. And some of the stuff they're not watching, we can put it on a fast on an AVOD platform, and some of the stuff that they're not watching, we can keep it nonexclusively on Max but we could also sell it to others. So we are relentlessly focused on creating great content and monetizing in every way possible.

WAPNER: Could you ever see a day, David, where you know there's a return to some kind of bundle where, you know, all of you and your competitors just sort of throw up your hands and say maybe we're better together than each one of us doing our separate thing and maybe through I don't know what distribution method we're talking about here, obviously, but you come together with however many of you all and you offer of, I don't know, 50 bucks a month and you get five different streaming services. Is that a, such a far-off thought?

ZASLAV: Well, look ultimately, we have to create an environment as an industry that's easy for consumers. And imagine a world 25 years ago where you needed to subscribe to ABC, NBC, you need to subscribe independently the different channels, and people spend 11 minutes on average trying to figure out where the show they want to watch is. So ultimately, consumers have already started to do it. What are the, what are the these app offerings that I love and many of them put us at number one in quality. And there's a lot of great out there and, you know, for each person, they're aggregating but it's still awkward. And I think eventually you will see a re-conjugation which will be very healthy for the industry. And there will also be some that, as Warren said, simply can't make it. You know how long can you be losing billions and billions of dollars?

BOORSTIN: So I guess the question there David is, do you think there needs to be more consolidation among the streaming players? Do you think that now as this combined service, you're big enough to compete with the likes of say a Disney, Hulu or Netflix and at the same time, how do you respond to the fact that just last week, four Democratic lawmakers said that they want this deal the Warner, the Warner Brothers Discovery merged company to be reexamined by the DOJ. So on one hand, are you too big or are you big enough?

ZASLAV: Well, look, I think what we demonstrated today is we're pro consumer. How do we provide as much great content as we can and make it available to consumers in multiple ways? If people want to just have the Discovery Plus content, Food, Home, Discovery, Animal Planet, they can continue to do that. And so, our focus is very pro-consumer. I think there will be consolidation but it could happen in a number of ways. One, it could happen the way Scotty just said which is that there isn't a consolidation of ownership. But there's a consolidation through a package. That package could come through a number of us content owners over the next couple of years coming together or in some ways Amazon is doing it right now. Amazon, Roku, Apple, they're having their own chase. They recognize, Tim recognizes it, Andy Jassy does that it's a bit of a chaotic environment. And so, when you can make a better experience for consumers, there's value creation and so, look, I think it's a very exciting time to be in this business particularly if you have a diversified media company that can generate real free cash flow which is which and you have great brands that people and content people love everywhere in the world. So I like our chances. I like our hand. And it's it's a, it's a bit of a chaotic time. But everything's possible right now.

BOORSTIN: Well, certainly a lot of big news today and I know you'll have more news coming certainly around the sports and news piece of your business and we also should know that you've been in a quiet period so you haven't been able to give specific numbers but we'll learn more at your earnings—

ZASLAV: In a couple of weeks.

BOORSTIN: In a couple of weeks. David, thanks so much for joining us, Scott. Back over to you.