Warner Bros' woes go beyond imbroglio that caused CEO's ouster

Los Angeles

THE next CEO at Warner Bros won't have an easy job, and not just because the studio is recovering from a sex scandal that toppled its leader on Monday.

Whoever parachutes into Kevin Tsujihara's job at the film and TV studio will be leading a company caught in a swirl of change orchestrated by new owner AT&T Inc. Warner Bros is playing a crucial role in efforts by the telecom-giant-turned-media-conglomerate to compete with Netflix Inc and Amazon.com Inc, while still churning out hit movies and TV shows.

Warner Bros and AT&T are under assault from many directions - and not just from online competitors. In the next day or so, industry leader Walt Disney Co will complete its US$71 billion acquisition of 21st Century Fox Inc assets. With the Fox film and TV studios under its roof, along with cable channels such as FX, the entertainment giant will be an even more formidable competitor.

Warner Bros also faces a flurry of new streaming services, including one from Disney that will harness its Marvel, Star Wars and Pixar libraries. Comcast Corp's NBCUniversal is planning another for next year.

"The scandal comes at an inopportune time for Warner and AT&T, especially with the Disney+ and NBC streaming launches," said Geetha Ranganathan, an analyst at Bloomberg Intelligence. Since vanquishing the final legal challenge to its US$85 billion takeover of Time Warner last month, AT&T has moved quickly to reshape its new media businesses, including handing additional responsibilities to Mr Tsujihara before his ouster on Monday.

In a sweeping shake-up announced this month, AT&T appointed NBC executive Robert Greenblatt to lead WarnerMedia's entertainment and direct-to-consumer businesses, overseeing HBO, TNT and other channels. CNN President Jeff Zucker was promoted to lead news and sports, while Mr Tsujihara added kids and young adult programming to his duties at Warner Bros.

With the new leaders and reorganisation, AT&T is creating a more integrated media business that can help the company peddle entertainment programming to its millions of mobile-phone customers and pay-TV subscribers at DirecTV.

Mr Tsujihara was felled by reports of a sexual relationship with an actress he helped promote. "It is in the best interest of WarnerMedia, Warner Bros, our employees and our partners for Kevin to step down as chairman and CEO of Warner Bros," John Stankey, head of the WarnerMedia, said in a statement. The 54-year-old executive had an affair with actress Charlotte Kirk and helped her get roles in movies, according to a report in the Hollywood Reporter. The magazine also alleged the relationship was linked to a US$450 million film-financing deal to back movies produced by the Burbank, California-based studio.

Under his leadership, the Warner Bros film division fared as well as any in the face of industry domination by Disney.

With franchises that include the DC Comics and the Harry Potter/Fantastic Beasts pictures, Warner Bros has run second to Disney in each of the past three years. The division posted record operating income last year.

"Tsujihara has executed well on the DC and the Fantastic Beasts franchises," Ms Ranganathan said. But the studio has been losing ground in market share. Disney's portion of the film industry climbed to 26 per cent last year, according to Box Office Mojo. That's compared with 16 per cent apiece for Warner Bros and Universal.

Warner Bros's DC Comics is meant to compete with Disney's Marvel, but the franchise didn't have a US$1 billion picture until Aquaman last year.

The more ominous sign of Disney's dominance is how much box-office revenue it generates per movie. It only released about 10 films in 2018. Warner Bros put out about 40, and didn't make nearly as much money. BLOOMBERG