Discovery-WarnerMedia’s $3B in Cost-Savings: Where Will That Come From?

The combined firm will likely see significant layoffs as leaders evaluate what services are duplicative as well as how big of a real estate footprint to keep.

The surprise May 17 reveal of WarnerMedia’s merger with Discovery Inc. was met by a mixture of excitement and trepidation by employees at both companies, sources at each say. There was excitement at the prospect of building a competitor to streaming juggernauts like Netflix, and trepidation over that dreaded term “synergies.”

The two companies say they expect $3 billion in cost-saving synergies after two years and plan to pour that cash back into creating streaming content. But where will those savings come from?

The most obvious place is layoffs associated with the merger. The bright side: There is little to no overlap on the creative or content side of the businesses, as WarnerMedia offerings like HBO and Warner Bros. focus on more scripted content while Discovery has leaned into reality and unscripted fare. The bad news: Back office staff, from attorneys and accountants to HR, sales and IT, are likely to see cutbacks.

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“While overlap in our creative and content capabilities is virtually nonexistent, there will be opportunity to redirect investment away from duplicative back-office, support and administrative functions into our growth strategies,” AT&T CEO John Stankey wrote in a May 17 memo to WarnerMedia staff. Discovery CEO David Zaslav told reporters during a Zoom press conference the same day that “[On every part of the business other than content] we’re going to get really aggressive and drive productivity.”

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Then there is what Discovery CFO Gunnar Wiedenfels told analysts, citing “optimization potential” from “systems integration” and “processes.” That means looking at everything from the payroll and benefits software to tech vendors to third-party marketing budgets. Combining the companies gives them a chance to reevaluate every deal with every vendor and service provider.

Zaslav, speaking at a JPMorgan conference Wednesday morning, said that the companies had $6 billion “being spent on direct-to-consumer non-content expenses, there is just a lot of overlap there. We are building a product, they are building a product, we are marketing a product, they are marketing a product.” However, when it comes to the Warner Bros. studio, Zaslav said “we are assuming zero [synergies].”

But there is also a third element still to be worked out: the combined company’s real estate footprint. The iconic Warner Bros. lot in Burbank won’t be going anywhere (Zaslav, who recently bought the former Beverly Hills estate of producer Robert Evans, says he plans to maintain an office on the lot). But where does that leave the satellite offices in Nashville (where Scripps Networks had been based), or Silver Spring, Maryland (which had long been Discovery’s home)?

Perhaps the biggest question: Which New York City office will become the company’s world headquarters? Will it be WarnerMedia’s Hudson Yards offices, which sit in a gleaming 103-story tower that also houses an observation deck on the 100th floor? Or will it be Discovery’s more modest office, nestled between Union Square and Madison Square Park, in a 13-story building built in 1895?

If cost savings are key, one CNN source speculates that Zaslav and other top executives may stay put downtown in their more modest digs.

Regardless of where the headquarters is, the transition will still be a tough one, as executives noted in conversations with staff. “It was important that the table gets set to reorder the industry in a way that was to our respective advantages,” Stankey said of the merger in a Discovery town hall May 19. “Waiting longer would have meant that instead of getting to set the table, you probably would have been dealing with table scraps.”

This story appeared in the May 26 issue of The Hollywood Reporter magazine. Click here to subscribe.