What went wrong and why it was canceled

What went wrong and why it was canceled

Executive producer Chris Licht of the television show Our Cartoon President speaks onstage during the CBS/Showtime portion of the 2018 Winter Television Critics Association Press Tour at The Langham Huntington, Pasadena on January 6, 2018 in Pasadena, California.

Frederick M. Brown | Getty Images

Chris Licht wasn’t supposed to start his new job as CNN’s chief until May.

But on Thursday he found himself addressing about 400 full-time CNN+ staffers, some in person and some through a remote video feed. Hundreds of other CNN employees had gotten hold of the remote link, which was passed around from person to person, to hear what their new boss had to say.

The purpose of Licht’s introductory speech to many employees wasn’t what he’d expected when he agreed to take over for Jeff Zucker earlier this year. Licht told employees the project they’d been working on for the past six to nine months, the subscription streaming service CNN+, was ending April 30, about a month after its launch. He acknowledged that many would lose their jobs.

Licht, who officially starts May 2, quit his job as the executive producer of “The Late Show With Stephen Colbert” to run CNN. On Thursday, he came across as passionate and empathetic, according to people who listened to him speak.

The CNN+ debacle

CNN+ will only end up lasting a few weeks. Several factors led to its demise. Here are some key takeaways:

  • Before their merger, Discovery and WarnerMedia executives couldn’t discuss planning operations. Discovery’s leaders were already skeptical of CNN+.
  • WarnerMedia executives expected CNN+ reach 2 million subscribers after a year, but the new leadership saw the service’s early numbers as weak.
  • David Zaslav, CEO of the new Warner Bros. Discovery, has another streaming strategy in mind that focuses on bundling, not standalones.

For some CNN+ employees, it was the first time they’d heard from Licht. But, awkwardly, for scores of others, it wasn’t — they had met Licht just two days earlier, when he toured CNN’s New York headquarters. Licht made a point to stop by the 16th floor, which had recently been converted from a Turner Broadcasting floor to the home of CNN+.

He shook hands with employees — whoever happened to be in the office that day — with no hint that two days later, he’d tell them the standalone streaming service would be shuttered. CNN+ staffers will be allowed to reapply to other roles at CNN. Axios reported about half, or 350 employees, will likely be laid off.

“This is a uniquely shitty situation,” Licht said more than once on Thursday, according to people in attendance.

What led to CNN+’s launch on March 29 and its rapid demise is an unusual mix of corporate deal-making, leadership disagreement, unexpected resignations and legal restrictions.

“It will be a Harvard case study,” said one Warner Bros. Discovery executive.

CNBC spoke with a dozen people directly involved with CNN+ about why it folded so quickly — and why it ever launched in the first place.

CNN+ is born

Zucker and deputy Andrew Morse, CNN’s head of global digital business who eventually became CNN+’s chief, initially discussed launched a streaming service in early 2020, months before Jason Kilar joined WarnerMedia as chief executive, according to people familiar with the matter.

Jason Kilar

Phil McCarten | Reuters

In Kilar, Zucker and Morse found a digital evangelist. He was brought on to transform WarnerMedia into a company 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 importance.

“In my opinion, CNN+ is likely to be as important to the mission of CNN as the linear channel service has been these past 42 years. It would be hard to overstate how important this moment is for CNN,” he tweeted, adding: “CNN+ is also important b/c it is CNN unmistakably embracing a scalable, robust paid digital business model.”

Some at CNN wonder whether Zucker could have saved the product, given his relationship with Zaslav. But it’s also possible his surprise exit allowed the Warner Bros. Discovery CEO to dodge a bullet. He wouldn’t have to tell his friend that the pet project he’d spent the past year on didn’t have a home at Warner Bros. Discovery. Zucker and Zaslav haven’t spoken since Zucker’s resignation. Whoever is to blame for Zucker leaving, his departure made CNN a less stable asset and one that has given Zaslav his first major headache as CEO of the combined company.

Several past and present CNN staffers told CNBC they believe the CNN+ debacle may speak to a new era of CNN.

While many WarnerMedia employees have complained about working under the ownership of a phone company that didn’t understand entertainment, AT&T largely left CNN and Zucker alone. Zucker wielded a lot of power at WarnerMedia and had full backing for his vision at CNN. Axios reported WarnerMedia planned to spend $1 billion on CNN+ in the next four years.

Zaslav’s swift ax to CNN+, in combination with Warner Bros. Discovery board member John Malone’s comments to CNBC about returning CNN to hard news, signal a more active corporate hand over the organization’s future.

From now on, CNN’s strategy will have to align with its parent company. There’s fear among CNN staffers that if the news organization is only seen as a companion piece for a streaming bundle, it won’t be able to flourish as a brand as linear TV subscribers melt away.

The ramifications of that shift are still unknown. But it will be a culture change for a cable news network whose leadership has gotten used to getting what it asks for.

With CNN+, they clearly didn’t.

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