Clashing strategies doomed CNN+ amid corporate merger

By Brian Stelter, CNN Business

A version of this article first appeared in the “Reliable Sources” newsletter. You can sign up for free right here.

When WarnerMedia and Discovery merged earlier this month, the incoming management team faced an immediate question: What to do with CNN+.

So at 8 a.m. on April 11, the first morning of Warner Bros. Discovery’s corporate life, before the stock even began trading on Wall Street, the company’s new streaming boss J.B. Perrette and incoming CNN CEO Chris Licht held a critical meeting about the two week old subscription service. On the other end of the video call were CNN chief digital officer and EVP Andrew Morse, CNN+ general manager Alex MacCallum and chief technology officer Robyn Peterson.

The meeting was Discovery’s first full look at the CNN+ business model and the initial subscriber numbers. That’s because executives at competing companies are legally barred from such discussions during a merger review process.

But everyone in the meeting knew that Perrette and his longtime boss David Zaslav were inclined to roll all of the company’s assets into one super-sized streaming platform. Discovery executives were clear about that in public statements a number of months ago. It became even more evident when Morse, an outspoken believer in CNN+, shared his status report on April 11. Perrette’s concerns were readily apparent.

The situation “is honestly really simple,” a CNN executive remarked. “Two very different strategies for a future caught in the middle of a corporate merger.”

Ten days later, on Thursday, CNN+ was cancelled in a highly public way. Licht and Perrette announced that the service will cease operations on April 30. Subscribers will receive prorated refunds. Hundreds of staffers will either land new positions at the company — or be laid off.

There were certainly rumblings that the new management team was going to take some action. Axios reported on April 12, one day after the pivotal first meeting, that “investment and projections for CNN+ are expected to be cut dramatically in response to a low adoption rate.”

But few really anticipated that the entire service would be shuttered less than a month after it had debuted.

From the point of view of the leadership team that launched CNN+, one of the world’s top news brands had to start a subscription business to secure its future. It was an expensive but necessary bet — and had to be made regardless of merger timing.

From the other POV, conveyed by Perrette during a town hall with staffers on Thursday, the “prior leadership” of CNN endangered the brand because they “decided to just keep going” and launched despite the pending merger.

Discovery has tried niche streaming services in the past with little success. Perrette’s statement in the end-of-CNN+ press release spelled out the new company’s vision: “In a complex streaming market, consumers want simplicity and an all-in service which provides a better experience and more value than stand-alone offerings.”

CNN went ahead and launched CNN+ on March 29, knowing the merger was going to take effect in April.

Launching in March “wasn’t fair to the incoming team or all the employees who have worked so hard at CNN+,” a Discovery veteran remarked. “Why not be prudent and wait two weeks till the close?”

The counterargument, made publicly by ex-WarnerMedia CEO Jason Kilar, was that plans for the streaming service were put in motion in the summer of 2020.

“We’ve been hard at work on this for nearly two years,” he said on CNBC, and so “the timing of the launches has literally been set for about a year and a half.”

He also predicted that CNN+ “is the future of CNN,” adding, “I think anyone who does not have a scalable, robust paid business model digitally doesn’t have a very strong future” in the news business.

Discovery’s frustration with the previous management team — particularly Kilar — was converted into a determination to be decisive, rather than take half-measures, the Discovery veteran said.

The April 11 meeting was followed by several other huddles, culminating in Thursday’s announcement of the changes.

Morse, who championed CNN+, is leaving the company after a transition period. He said in an internal memo that “the vision the new leadership has for the future is different than the one we’ve had. That’s OK. That’s all part of change.”

MacCallum “will step in to lead CNN Digital,” the company said, and work with Licht “to determine a leadership strategy going forward.” Executives said they intend to double down on CNN Digital’s core strengths.

Within the halls of CNN, Licht got credit for his blunt and empathetic approach on Thursday. He highlighted the quality of CNN+ and called its closure a “uniquely shitty situation.” He told the affected staffers, “It is not your fault that you had the rug pulled out from underneath you.” And he vowed to minimize the impacts to staff.

We have more analysis to share, but let me say this on a personal note: TV is a team sport, and “Reliable Sources Daily” is made by an amazing team. From the cold opens to the closing thoughts, the guest bookings to the graphics, the show is superb, thanks to the producing staff. And on Thursday evening, despite this news, we got together and planned Friday’s show.

One of those outstanding team members, Ellie Smith, tweeted a message that went viral on Thursday. She wrote: “PSA if you’re going to tweet something snarky about CNN+, hundreds of journalists and technicians who did nothing but work their tails off just had the rug pulled out from under them. So be kind.”

“Total and utter shock”

Oliver Darcy reports: “Astonishment and disbelief reverberated throughout the 16th floor of CNN’s Hudson Yards office, which houses some of the hundreds of CNN+ employees. “Total and utter shock” is how one staffer put it to me after Licht and Perrette’s town hall meeting. ‘At first, people were really freaking out,’ explained the person. ‘And then, toward the end of the meeting, it just turned to sadness. Every team was just huddling with each other.’ CNN+ employees broke out bottles of whiskey and wine to commiserate, and some later retreated to nearby bars…”

Nine months of pay

Warner Bros. Discovery executives emphasized the generous nature of the pay packages for affected employees. CNN+ staffers will remain on the payroll for three months, and will have the ability to apply for open jobs at CNN or the wider company. Then, if they are not absorbed into the organization, they will be paid six months of severance. The untimely demise of CNN+ will draw analogies to Quibi — in fact, it already has — but Quibi’s severance package was not nearly as extensive…

Part of the equation?

Oliver Darcy reports: “WBD has billions in debt and executives are under pressure to realize $3 billion in savings. Which is to say, CNN+ was obviously an attractive opportunity when looking to implement cost-cutting measures. As CNBC’s David Faber put it, ‘Spending $500m a year on a venture the boss doesn’t believe in while he tries to quickly fulfill a $3b cost synergy promise. CNN+ never had a chance…'”

Lowry’s point

Brian Lowry writes: “I think this is an easily overlooked point re: CNN+, made by the Washington Post’s Steven Zeitchik on Twitter. ‘It’s important to recognize that CNN isn’t giving up on reaching consumers through digital devices far from their cable box; they’re giving up on a specific branded product that was conceived by a previous corporate owner,’ he wrote. ‘There’s kind of a difference.’ Indeed, there’s a major difference between using CNN as another source to provide content for a bigger streaming service and digital ventures — which appears to be Discovery’s plan — and believing the brand should be positioned as a stand-alone product…”

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