That was fast.
Just three weeks after a big glitzy launch, CNN’s new streaming service, CNN+, is being closed down. The decision was taken – or at least announced – just over a week after the formalities completed on the merger between WarnerMedia (which owns CNN) and Discovery. Together, their combined media group is called Warner Bros. Discovery and it has a new head in David Zaslav who came from Discovery.
There are going to be some good media books written about this tale, but from reading the reporting, it sounds clear that the real failure here was on CNN’s old management pushing through the launch of its new service just two weeks ahead of the upcoming merger. The service had been conceived by CNN’s previous boss Jeff Zucker. But Zucker found himself forced out following failures to disclose a workplace relationship.
Nevertheless, CNN had been spending big money on the new service. They had been hiring hundreds of journalists, spending lots of money on new shows, giving their existing talent from the main CNN service new gigs on the digital fledgling (no doubt helping keep them in the CNN tent as they could boost their pay with these new shows), and even renting new accommodation.
But what they didn’t have was the support of the incoming management – hence the seeming rush to get the new service up and running before the merger was complete. Perhaps there was a belief that nobody would kill a new project just like that – much of the investment would have already been made. After all, shows were in the can and talent had been hired. And Discovery’s Zaslav couldn’t get involved until the merger had formally completed.
There were reports floating around, which must have come from inside Warner Bros. Discovery, saying that as few as 10,000 people were watching at any given time. Although based on a perfectly respectable week three subscriber base of 150,000, that doesn’t sound terrible. In any case, it’s largely a non-linear offering, so it arguably doesn’t matter how many viewers you have at any one time, as long as those who are subscribing feel like they’re getting value for money.
The service was only made available in the US before it was killed, and it cost $5.99 a month, with an offer price of $2.99 for life of subscription if you signed up in the first month. Not extortionate, but meaningful, for yet-another-streaming-service.
There definitely is a place for niche streaming services – although they do need to keep their spending in check to make sense.
In truth, the Netflix earnings call earlier this week almost certainly put the final nail in the coffin for the service. It reported a first subscriber fall of 200,000 and said that it believed it’d lose another 2 million subscribers in the following quarter (in part due to coming offline in Russia). That has seen its share price plunge, and suddenly it seems that Wall St is questioning its valuations of all streaming services and the massive spending on programming in order to acquire subscribers at just about any cost.
Whatever the truth of that, it’s not a great environment to launch a new service.
Beyond the management shenanigans behind the scenes, and the pricing strategies of the service, what about the service’s actual make-up?
This was always the real challenge, and it faces a problem a lot of “legacy” cable channels are going to face. Simply put it amounted to this:
CNN+ could not include the live linear CNN channel.
If viewers know CNN for one thing, they know it to be a channel that you turn on when there’s big breaking news. But CNN+ subscribers don’t get that. They got a handful of updated shows throughout the day – half-hour news summaries as well as some specialist shows. Beyond that was an archive of older CNN documentaries along with newly made ones including most notably a series about the Murdochs that gained a bit of traction.
The reason that the linear CNN couldn’t be carried on CNN+ was simple: cable TV carriage fees.
While cable (and satellite) TV is probably in long term decline, there are still roughly 70m pay TV households in the US. But this is a number that has declined from closer to 100m, and is set to continue to decline. But nearly all of those 70m homes probably have CNN as part of their packages, and CNN collects one dollar ($1.01 according to Variety) per month for each of those subscriptions. That would amount to nearly $850m a year! Linear news channels in the US are very profitable. According to this table from Pew based on estimates from Kagan, CNN’s profit was $714m in 2020, while Fox News’ profit was $1.8bn.
The cable companies will only pay CNN that dollar a month if viewers have to have a cable subscription to see the service. If CNN makes its service available outside of the cable ecosystem, then they’ll stop paying that dollar a month, and suddenly CNN is facing an $850m hole in its books (and that’s before they account for the lost ad revenue that would come from the attendant fall in viewership).
This is the same reason that sports on the live ESPN channel aren’t also available to digital only ESPN+ subscribers.
As those cable homes continue to decline, the cable audience will age, since older viewers are most likely to hang onto “legacy” cable services. But they’re also amongst the biggest news viewers. So it’s not an easy line to tread.
At some point in the future, the hit will be worth it, and CNN could offer itself in a streaming only deal, but that’s probably a way off yet. And potentially a company the size of Warner Bros. Discovery can come to an arrangement with cable companies to let it offer live linear CNN earlier – essentially cutting the cable companies in financially. Cable is likely to remain an important part of the newly merged company’s business, since it continues to have strongly performing cable services from both the Warner and Discovery parts of the business.
I would guess that most of the programming they’ve made will end up on HBO Max or Discovery+ – or possibly both. And perhaps they’ll even continue to make some of the new shows. I would have liked to be able to see Scott Galloway’s show for them or Brian Stelter’s spin-off media show. (Not that I have Discovery+ in the UK, and HBO Max has yet to launch of course).
A CNN “tile” on a combined HBO Max/Discovery+ app makes a lot of sense. Perhaps it’s a $2 upsell. Perhaps it’s just included. But CNN+ was always going to end up as part of a bundle, rather than a standalone app.
However, there must be some serious management questions about why the service launched when it did, and how much money was wasted. The new Warner Bros. Discovery does have a lot of debt, and they are going to have find savings. Theoretically shutting down CNN+ is an easy saving, although I do wonder how much will actually be saved when everything washes out.
You do have to feel sorry for staff who moved to the new service and now face a very uncertain future.