A Whole New World of Discovery

By Glenn Dyer | More Articles by Glenn Dyer

Only in Hollywood could a deal that sees the creation of a new player out of two existing groups be pictured as a dramatic new move but that’s what we saw this week with the AT&T-Warner Media – Discovery shuffle.

Forget the multibillion loss by one company, tens of billions of dollars in debt, factor in some of the best known brands globally (Netflix, Apple, Amazon, Disney) as the offscreen ‘baddies’ to the plucky new contender, a string of looming job losses (including the CEO of one of the companies who wasn’t told about the sale and merger plans).

The winner from the great Warner-Discovery-AT&T deal is David Zaslav who is already the highest paid executive in US media. He is now set to take his career earnings from $US690 million up to the end of 2020 to a billion US dollars or more by the time a new six-year contract to run the new company ends in 2027.

In every big deal, especially the media, attention is honed down to focus on one person – the dealmaker, adviser, banker or the CEO. In the case of the $US43 billion sale of Warner by AT&T and then the merger with Discovery, its Discovery CEO, David Zaslav. If he makes this deal work it will make him a billionaire.

Before this deal he was already a legend in the US business and media as perhaps the most highly paid executive (outside some of the family owners like the Redstones at ViacomCBS or the Murdochs at News Corp/Fox Corp).

Discovery floated on Wall Street in 2007 and up to the end of 2020, Zaslav was paid a total of $US690 million ($A886 million) in cash, shares, options and other benefits. That’s an average of more than $US53 million a year, or $US1 million a week.

Now he has to merger Warner Media with Discovery. The new company is said to be a $US150 billion company in the making (a massive $US55 billion in debt will make sure of that estimate). It’s all about streaming video and building enough subscribers to be able to chase Netflix, Disney, Amazon and Apple into the future of films, TV and everything else.

The merged company will have close to 80 million subscribers through several streams – a long way behind Disney with 103 million at the end of March, Netflix 208 million at the same time and close to 200 million between Amazon (through its Prime service to customers) and Apple through its 1.5 billion customer base. Both giants do not release their streaming customer numbers.

It’s a typical media story – everything new is great again – wasteful AT&T spends $US134 billion buying Warner ($US85 billion) and $US49 billion on DirecTV, a cable satellite business.

AT&T loses more than half that amount (while boosting debt to $US155 billion) in getting rid of DirecTV in February for around $US16 billion in cash and securities to buyout group, TPG and now getting rid of Warner for which it will receive $US43 million in cash, shares and the value of debt Warner will hang on to (hence that $US55 billion millstone for the new company after the merger with Discovery).

But in all deals there’s a winner and a new Sun King. In this case it’s the David Zaslav, the CEO of Discovery since it floated on Wall Street back in 2007. Before then he was at NBC. Since then (and with the backing of John Malone, the US cable king) and then the Newhouse family’s Advance Publications after buying the Scripps cable business in 2018, Zaslav has made Discovery into a global name – for which he has been handsomely rewarded.

His appointment as CEO of the new company has raised eyebrows among some AT&T investors and Warner employees. After all, AT&T shareholders will own 71% of the new company, Discovery shareholders (including the Newhouse and Malone interests) will control 29%.

And with $US3 billion in ’synergies’ on the table, Warner staff know (after two big whacks by the incompetents at AT&T) they are in the firing line, not their counterparts at Discovery.

But Zaslav has chopped before to make the $US14.6 billion Scripps takeover work from 2018 and into 2019 and he will do the same again in this final gig. In fact he has been paid for results and growth at Discovery – from just $US2.2 million in 2007, the first year at Discovery was a listed company, Zaslav’s pay has soared and slid (relative to the peaks).

The most eye-catching amounts were $US156 million in 2014 and $US128 million in 2018. They relate to contract renewals, from what industry reports suggest. His first year was his lowest pay, the second year – 2008 saw that figure more than triple to $US8 million.

On Tuesday his current contract was extended to 2027 when he will be 68. Old owners (such as Rupert Murdoch and the late Sumner Redstone) are allowed to go past retirement age, old CEO’s rarely do so.

So if he earns his yearly average of $US53 million up to 2027, that’s another $US370 million or thereabouts to pocket which will boost his gross to more than a billion US dollars. Kerrching!


About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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