Warner Bros.’ Challenges Go Beyond Sex Scandal That Toppled CEO

(Bloomberg) -- 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 $71 billion acquisition of 21st Century Fox Inc. assets. With the Fox film and TV studios under its roof, along with cable channels like 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 $85 billion takeover of Time Warner last month, AT&T has moved quickly to reshape its new media businesses, including handing additional responsibilities to Tsujihara before his ouster Monday.

WarnerMedia Overhaul

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 Tsujihara added kids and young adult programming to his duties at Warner Bros.

With the new leaders and reorganization, 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. The company plans to offer a new streaming service later this year with programming from Warner Bros., HBO and Turner Broadcasting.

Tsujihara was supposed to be a key player in those efforts. But he 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. “Kevin acknowledges that his mistakes are inconsistent with the company’s leadership expectations and could impact the company’s ability to execute going forward.”

Financing Deal

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 $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,” Ranganathan said.

Market Share

But the studio has been losing ground in market share. Disney’s portion of the film industry climbed to 26 percent last year, according to Box Office Mojo. That’s compared with 16 percent 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 $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.

WarnerMedia doesn’t have a successor to Tsujihara lined up yet, but it plans to announce temporary leadership for the division on Tuesday. The interim team is likely to include Toby Emmerich, chairman of the studio’s motion-pictures group; Peter Roth, television group president; and at least one other executive, according to a person familiar with the matter. Variety previously reported on the team’s makeup.

Laura Martin, a media analyst at Needham & Co., doesn’t expect Tsujihara’s ouster to have any big impact on AT&T overall.

“We have to see who they get,” Martin said.

--With assistance from Lucas Shaw and Gerry Smith.

To contact the reporter on this story: Anousha Sakoui in Los Angeles at asakoui@bloomberg.net

To contact the editors responsible for this story: Nick Turner at nturner7@bloomberg.net, Rob Golum

©2019 Bloomberg L.P.