What went flawed and why it was canceled

Government producer Chris Licht of the tv present Our Cartoon President speaks onstage through the CBS/Showtime portion of the 2018 Winter Tv Critics Affiliation Press Tour at The Langham Huntington, Pasadena on January 6, 2018 in Pasadena, California.

Frederick M. Brown | Getty Photos

Chris Licht wasn’t supposed to start out his new job as CNN’s chief till Could.

However on Thursday he discovered himself addressing about 400 full-time CNN+ staffers, some in particular person and a few by a distant video feed. Tons of of different CNN workers had gotten maintain of the distant hyperlink, which was handed round from individual to individual, to listen to what their new boss needed to say.

The aim of Licht’s introductory speech to many workers wasn’t what he’d anticipated when he agreed to take over for Jeff Zucker earlier this 12 months. Licht instructed workers the undertaking they’d been engaged on for the previous six to 9 months, the subscription streaming service CNN+, was ending April 30, a couple of month after its launch. He acknowledged that many would lose their jobs.

Licht, who formally begins Could 2, give up his job as the manager producer of “The Late Present With Stephen Colbert” to run CNN. On Thursday, he got here throughout as passionate and empathetic, in accordance with individuals who listened to him communicate.

The CNN+ debacle

CNN+ will solely find yourself lasting a number of weeks. A number of elements led to its demise. Listed here are some key takeaways:

  • Earlier than their merger, Discovery and WarnerMedia executives could not talk about planning operations. Discovery’s leaders have been already skeptical of CNN+.
  • WarnerMedia executives anticipated CNN+ attain 2 million subscribers after a 12 months, however the brand new management noticed the service’s early numbers as weak.
  • David Zaslav, CEO of the brand new Warner Bros. Discovery, has one other streaming technique in thoughts that focuses on bundling, not standalones.

For some CNN+ workers, it was the primary time they’d heard from Licht. However, awkwardly, for scores of others, it wasn’t — that they had met Licht simply two days earlier, when he toured CNN’s New York headquarters. Licht made some extent to cease by the sixteenth ground, which had just lately been transformed from a Turner Broadcasting ground to the house of CNN+.

He shook fingers with workers — whoever occurred to be within the workplace that day — with no trace that two days later, he’d inform them the standalone streaming service can be shuttered. CNN+ staffers might be allowed to reapply to different roles at CNN. Axios reported about half, or 350 workers, will seemingly be laid off.

“This can be a uniquely shitty scenario,” Licht mentioned greater than as soon as on Thursday, in accordance with individuals in attendance.

What led to CNN+’s launch on March 29 and its fast demise is an uncommon mixture of company deal-making, management disagreement, surprising resignations and authorized restrictions.

“It will likely be a Harvard case examine,” mentioned one Warner Bros. Discovery government.

CNBC spoke with a dozen individuals straight concerned with CNN+ about why it folded so rapidly — and why it ever launched within the first place.

CNN+ is born

Zucker and deputy Andrew Morse, CNN’s head of world digital enterprise who ultimately turned CNN+’s chief, initially mentioned launched a streaming service in early 2020, months earlier than Jason Kilar joined WarnerMedia as chief government, in accordance with individuals accustomed to the matter.

Jason Kilar

Phil McCarten | Reuters

In Kilar, Zucker and Morse discovered a digital evangelist. He was introduced on to rework WarnerMedia into an organization that revolved around streaming video rather than one that centered around distributing content to cable networks and movie theaters.

The CNN leadership envisioned CNN+ as something akin to The New York Times – a subscription news product that would eventually house video, podcasts, and all of CNN’s interview and entertainment programming. CNN also felt it had a global branding advantage over the Times, which is known more in the U.S. than abroad. Kilar believed CNN needed a digital subscription strategy, having seen scores of advertising-based digital media properties suffer from low valuations and volatile ad markets.

Over time, as millions of households cancel their cable subscriptions each year, CNN+ would become the landing spot for CNN’s linear network. Similar to ESPN.com, executives planned on CNN.com populating with more and more paywalled content and pushing CNN+ subscriptions. Executives researched potentially making all of CNN.com part of a subscription, but decided the content wasn’t strong enough to merit a full paywall. CNN.com is already profitable and is the most viewed news website, frequently generating more than 200 million unique visitors globally each month.

CNN hired consulting firm McKinsey to help with the operations of CNN+, but Kilar, Zucker and Morse handled the strategy. Based on months of research, they believed CNN+ would get to 2 million subscribers at the end of year one. Kilar believed that figure was a “layup” and a conservative estimate. The goal was to compete with The New York Times, which crossed the 10 million subscriber mark this year after acquiring digital sports website The Athletic.

WarnerMedia executives had a plan to meet their goal: They would use HBO Max, CNN.com and CNN’s linear channel as a constant marketing presence – a “funnel” – to push subscribers. The strategy was to launch CNN+ in the beginning of this year and then bundle it with HBO Max in September. This “would you like fries with that” approach for the millions of subscribers that sign up for HBO Max (HBO and HBO Max had 3 million new net adds last quarter) would ultimately lead to a robust, globally scaled news service.

A series of unexpected events

Chairman, WarnerMedia Jeff Zucker attends CNN Heroes at American Museum of Natural History on December 08, 2019 in New York City.

Mike Coppola | Getty Images

Zucker set a launch date in the first quarter of 2022 and began hiring hundreds of people as producers, software engineers and marketing support.

CNN Worldwide Chief Marketing Officer Allison Gollust was in charge of promoting the new service. Morse ran the day-to-day operations. Zucker had the greenlight from Kilar to spend hundreds of millions on the new service to give CNN a jumpstart into the digital era.

“We are going to take a pretty big swing here, and the company’s behind it,” Morse said in July 2021, when CNN formally announced it would build the new service.

The plan was to premiere with eight to 12 hours of live programming a day on the service. Zucker began signing up outside talent to anchor shows, including Kasie Hunt, who departed NBC News to take the job, and longtime Fox News anchor Chris Wallace.

When the merger was announced, AT&T said the deal would likely close in the middle of 2022.

Given that timeline, the CNN team set a launch date for CNN+ for the first quarter of 2022. That would give the service a few months of breathing space before Zaslav’s leadership team took over for Kilar, who already knew he wasn’t staying on at the company post merger. Zucker wanted to launch the service in January but ran into technical trouble. CNN was making a product from scratch with a brand new tech stack, rather than simply building on top of HBO Max. That took time, and CNN didn’t want to launch a buggy product. Zucker and Morse recalibrated to launch at the end of March.

As the months passed, regulators got through the approval process more quickly than initially expected. By February, AT&T and Discovery were targeting a close date of around April 11 – months earlier than anticipated.

That put the launch of CNN+ just weeks before the merger’s close date.

And then, on February 2, Zucker suddenly resigned.

Impact of Zucker’s resignation

Superficially, Zucker’s departure over an undisclosed relationship with Gollust didn’t change the trajectory of the product. Staffers say the day-to-day activity around the division wasn’t particularly interrupted by the sudden absences, because Morse remained and continued to steer the ship forward. If anything, CNN+ became a unifying mission for staffers. While CNN may have lacked a clear forward strategy with interim leadership and a merger about to happen, launching CNN+ on time was a clear goal for employees.

In that sense, the primary effect of Zucker and Gollust’s resignations wasn’t necessarily harm for the CNN+ product. Rather, their exits firmed the resolve of remaining employees to launch it on time. The CNN+ that launched on March 29 looked quite a bit like Zucker’s vision. There were fewer live programming hours than the eight to 12 stated in July, which may have hurt the product given demand for news and content regarding the war in Ukraine, but it launched more or less as designed.

But without Gollust, internal sources said marketing of the product wasn’t as strong in the key weeks before launch. Staffers said Morse was working overtime by that point, trying to wear multiple hats by running the service and getting support from corporate — previously the jobs of Zucker and Gollust.

As a result, the internal marketing of CNN+ — how CNN executives viewed the product compared with Discovery’s incoming leadership — helped lead to its demise.

Different strategies

By early this year, Zaslav had settled on a streaming strategy for Warner Bros. Discovery.

He wanted to bundle together HBO Max and Discovery+ and use news and live sports from WarnerMedia to make the streaming bundle even more attractive. The collection of assets, he thought, could take on Netflix as a global streaming behemoth. CNN will ultimately be a tab within the larger HBO Max-Discovery+ service.

David Zaslav, President & CEO of Discovery Inc.

Anjali Sundaram | CNBC

That made the existence of CNN+ antithetical to his strategy.

If Warner Bros. Discovery was spending hundreds of millions of dollars making programming for CNN+, Zaslav felt the company was misallocating resources. Wall Street tends to judge media companies on their main streaming product. Disney largely trades on Disney+ subscriber numbers. The Warner Bros. Discovery share price will likely move on the bundled number of HBO Max-Discovery+ customers.

CNN+ would be a sideshow niche product. Even if it showed growth, taking subscribers away from the larger bundle with the promise of a cheaper option in CNN+ would hurt Warner Bros. Discovery and represent a waste of resources.

One particularly irritating trait of CNN+’s pricing plan to Discovery executives was its “Deal of a Lifetime” plan — offering a 50% discount (initially $2.99 per month instead of $5.99) for as long a consumer remains a subscriber to CNN+. While that may be a great perk for a CNN+ subscriber, it was a strategic misfit for Zaslav. For anyone who would have signed up to the larger bundle because of CNN content, they now had a “forever” reason not to do so.

Discovery had also already tried niche subscription streaming products, having rolled out GolfTV, cycling streaming network GCN+ and Food Network Kitchen in 2020 and 2021. None of those products moved the needle for Discovery. Zaslav and other members of the Discovery leadership, including JB Perrette, who was taking over as Warner Bros. Discovery’s head of streaming, didn’t want to waste time plowing ahead with a strategy they’d already decided didn’t work.

Kilar, Zucker and Morse fundamentally disagreed with the strategy of using CNN as an HBO Max supporter. By giving CNN its own separate home, consumers enter a world of news and don’t leave when they see the variety of content CNN offers. If CNN is part of the larger HBO Max-Discovery+ world, they feared viewers will decide they’d rather watch a reality TV show or HBO drama. The effect would be to substantially diminish the value of CNN over time.

But Zaslav’s team thought the New York Times comparison was silly. The New York Times turned digital users into paying subscribers by putting their content offering behind a paywall. CNN wasn’t doing that. Instead, CNN would be trying to convince an existing user base already getting content for free from CNN.com and watching CNN on cable TV to pay $6 more per month for programming Discovery saw as unnecessary.

Instead, Zaslav’s team felt the correct comparison was Fox’s streaming service Fox Nation, which hasn’t reached 2 million subscribers since launching in 2018.

The launch

In the weeks before the launch, Morse began begging Kilar and other AT&T executives to see if there was a way he could speak with the Discovery leaders. Staffers described it as Morse “shouting from the rooftops” for a meeting.

CNBC reported the day after Zucker left in February that Discovery wasn’t enamored with CNN+ and disagreed with the strategy. The next day, Zaslav told CNBC he “hadn’t gotten a business review on what CNN+ is going to be and how it’s going to be offered,” which was an ominous statement for its future.

Morse wanted to find out directly from Discovery what Zaslav wanted. But AT&T told CNN’s team it couldn’t have any discussions with Discovery because of so-called gun-jumping laws which don’t allow the two sides to discuss future strategy until a merger closes. Kilar never spoke with Zaslav about CNN+, and he wasn’t going to make decisions about what he thought was best for CNN+ based on media reports.

Zaslav did meet with CNN executives in early March in a so-called “parlor” meeting with Michael Bass, Amy Entelis, and Ken Jautz, who were running CNN after Zucker left, as first reported by Puck’s Dylan Byers. In that meeting, Zaslav asked about CNN+ and its go-forward strategy, but lawyers in attendance told him he wasn’t allowed ask about it.

So Morse pushed ahead. In the first two weeks after CNN+ launched, 150,000 subscribers paid for CNN+. Yet, as CNBC reported, fewer than 10,000 watched on a daily basis. That number was actually closer to 4,000, a source has since told CNBC.

WarnerMedia executives were actually excited about the start. They viewed the daily active user, or DAU, statistic as pointless. The key metric for all digital services has always been number of subscribers. But Discovery executives felt the 150,000 subscribers wasn’t nearly enough of a foundation to reach 2 million within a year. They knew there wasn’t a hit show coming to CNN+. They saw subscriber numbers declining day after day after an initial pop. And they viewed the daily active user number as significant.

But, they also weren’t going to make a decision about CNN+ when its new leader, Licht, hadn’t even started. So Discovery asked Licht to start work early, behind the scenes, so he could make a determination about what to do with the service.

At 8 a.m. ET on April 11 — the first day Warner Bros. Discovery began trading as a combined company — Licht and Perrette told Morse and his team that CNN+’s marketing budget was immediately going to zero. It was Licht’s first meeting at CNN.

CNN+ staffers left that meeting knowing the product wasn’t going to continue as is. They hoped it wouldn’t be shut down completely, although they feared a decision had already been made. Morse and his team argued the product was just 12 days old. They said DAUs were a silly statistic. They tried to make the point that Alex MacCallum, CNN+’s head of product, had come from The New York Times and The Washington Post. CNN was a news service, and it shouldn’t be judged against niche entertainment streaming services.

They argued 150,000 subscribers is far more than The New York Times, The Washington Post or The Wall Street Journal got in their first two weeks after they launched their digital subscription products.

But Discovery had never thought that comparison was relevant. The April 11 discussion never got heated, but there was clear resignation from the CNN+ side. It was an hour-long meeting to go over two years of work.

Ten days later, Licht announced he’d decided to kill the product. Morse said last week he’s leaving the company after a transition period.

CNN+’s legacy

CNN staffers roundly share frustration that Discovery didn’t backchannel information to delay the CNN+ launch if they were that unhappy with the strategy.

They wonder whether the reason Discovery chose not to relay information in the months leading up to CNN+’s launch was so Discovery can count the hundreds of layoffs and saved operation costs from the service’s shutdown as part of the $3 billion in synergies Zaslav has promised Wall Street as part of the merger rationale.

Kilar has been very public about his belief in CNN+. On its launch day on March 29, he wrote a series of tweets touting its significance.

“For my part, CNN+ is more likely to be as essential to the mission of CNN because the linear channel service has been these previous 42 years. It might be exhausting to overstate how essential this second is for CNN,” he tweeted, including: “CNN+ can be essential b/c it’s CNN unmistakably embracing a scalable, sturdy paid digital enterprise mannequin.”

Some at CNN ponder whether Zucker might have saved the product, given his relationship with Zaslav. However it’s additionally doable his shock exit allowed the Warner Bros. Discovery CEO to dodge a bullet. He would not have to inform his buddy that the pet undertaking he’d spent the previous 12 months on did not have a house at Warner Bros. Discovery. Zucker and Zaslav have not spoken since Zucker’s resignation. Whoever is guilty for Zucker leaving, his departure made CNN a much less secure asset and one which has given Zaslav his first main headache as CEO of the mixed firm.

A number of previous and current CNN staffers instructed CNBC they consider the CNN+ debacle could communicate to a brand new period of CNN.

Whereas many WarnerMedia workers have complained about working below the possession of a telephone firm that did not perceive leisure, AT&T largely left CNN and Zucker alone. Zucker wielded a variety of energy at WarnerMedia and had full backing for his imaginative and prescient at CNN. Axios reported WarnerMedia deliberate to spend $1 billion on CNN+ within the subsequent 4 years.

Zaslav’s swift ax to CNN+, together with Warner Bros. Discovery board member John Malone’s feedback to CNBC about returning CNN to exhausting information, sign a extra lively company hand over the group’s future.

Any further, CNN’s technique should align with its mum or dad firm. There’s worry amongst CNN staffers that if the information group is barely seen as a companion piece for a streaming bundle, it will not be capable of flourish as a model as linear TV subscribers soften away.

The ramifications of that shift are nonetheless unknown. However it will likely be a tradition change for a cable information community whose management has gotten used to getting what it asks for.

With CNN+, they clearly did not.

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