The Update Issue: RIP CNN+... And a Very Bad Week for Some of 2021's Headline Grabbers

Netflix's (NFLX) subscriber slowdown wasn't the only bomb to hit the streaming world last week... Last Thursday, Warner Bros. Discovery (WBD) announced that it would shut down streaming service CNN+ at the end of this month, despite the service only having launched about three weeks prior. The news came as somewhat of a shock since […] Not rendering correctly? View this e-mail as a web page [here](. [Empire Financial Daily] The Update Issue: RIP CNN+... And a Very Bad Week for Some of 2021's Headline Grabbers By Berna Barshay --------------------------------------------------------------- [Man who called AZO before it soared 6,900% makes shocking real estate prediction]( Whitney Tilson, who's appeared twice on 60 Minutes, has just dropped one of the biggest bombs of his career. He's predicting an abrupt end to the global real estate market. [Here's everything he's saying](. --------------------------------------------------------------- Netflix's (NFLX) subscriber slowdown wasn't the only bomb to hit the streaming world last week... Last Thursday, [Warner Bros. Discovery (WBD)]( announced that it would shut down streaming service CNN+ at the end of this month, despite the service only having launched about three weeks prior. The news came as somewhat of a shock since the service was so new, but it can easily be explained by the change of ownership at Warner Bros. – the company had flipped from AT&T's (T) ownership only 10 days prior, merging into the former Discovery Communications to form the new company. While the Warner Bros./Discovery transaction was structurally a merger, have no doubt that this was really a takeover. And CNN's new owners had no interest in continuing to invest in the digital service that had been so enthusiastically embraced by its prior managers. Management from the former Discovery is on a mission to cut costs. In fact, CEO David Zaslav has promised $3 billion in synergies and cost cuts... and putting CNN+ on the chopping block is a good first step toward reaching that goal. CNN+ was an expensive endeavor... In the year leading up to its launch, Warner Bros. poured about $350 million into CNN+. Yet according to a leaked internal March 2022 pitch deck obtained by news site Axios, Warner Bros. Discovery would have had to invest another almost $1 billion to get the service to breakeven in 2025... Source: Axios Projections had the service generating an extremely healthy $800 million in annual operating profits by the end of the decade. This would be even more than the linear network earns now, with operating profits estimated at about $500 million. But these forecasts relied on some pretty aggressive assumptions about subscriber acquisition. Based on the leaked pitch deck, CNN+ would need to attract nearly 30 million subscribers by 2030 to hit those profit numbers... Source: Axios These assumptions about the subscriber trajectory seem very aggressive. The managers from the Discovery side clearly agreed, based on the decision to cut their losses and bite the bullet on the more than $400 million that had already been sunk into launching this service. The shutdown of CNN+ shouldn't be a total shock, even if the speed of execution is... Not only does Zaslav have a reputation for being a penny pincher, but he has also already promised these big synergies. As he also noted on Warner Bros. Discovery's very first earnings call, "We will not overspend to drive global subscriber growth." But as Puck News pointed out in an article last week, Zaslav was even hinting at the shutdown during his press tour that occurred in the months prior to the deal closing... Zaslav showed some of his concern publicly. In addition to his team's privately stated doubts about CNN+, nothing about Zaslav's media tour suggested that he supported the streaming plan. Buried down in that Variety profile, from December 2021, was a telling quote: "We've had a lot more success putting all our content together than in packaging them separately," Zaslav said of Discovery's streaming strategy in Europe. "When we put sports, news, all of our entertainment and all of our nonfiction together in some markets, we have found lower churn and higher growth." In all his public statements about the combined strength of HBO Max and Discovery+, as well as his statements of support for CNN, he never once touted CNN+ – though he and other Discovery execs repeatedly spoke about their desire to have a single streaming service that would give consumers the full "bouquet" of Warner Bros. Discovery content. Given Zaslav's lack of interest in pushing forward CNN+, it's a little confusing why Warner Bros. pushed so hard to get the service launched before the deal closed and why the company spent so much money on it. But the Warner Bros. head under AT&T ownership, Jason Kilar, passionately believed that one day there will be a post-linear world, and the best way to ensure the longevity of the CNN brand as an asset would be to get into the streaming space. So he kept going, even though the writing was on the wall that he would be leaving his job when the deal closed. For regulatory reasons, the new management had no authority to start calling the shots on this or any other issue until the deal officially closed. So that's how we got to a place where almost $500 million was spent to launch a service that would only last a few weeks. Kilar pushed forward on what he thought was the right thing for CNN in the long term. I'm inclined to think he may have been right in the long haul – it's hard to know how monetizable CNN (or Fox News, or MSNBC) will be 10 or 20 years down the road in a totally post-linear TV world. But Zaslav is also right that in the shorter term – say, the next five years – the appetite for this kind of streaming news service may be limited. In the end, Zaslav got what he wanted – he cut his losses and now is more than 10% of the way to the $3 billion in savings he has promised. Kilar left with an eight-figure severance package. They are both doing OK. And the folks who work at legacy CNN are probably relieved they don't have to fight for resources with CNN+. Not so lucky are the CNN+ staffers, many of whom left jobs at CNN or other news organizations within the last year to join the CNN+ startup, only to be terminated just months later. I've heard that severance packages for the CNN+ employees are generous at six to eight months of compensation – but that might not feel so generous to experienced hires who may have left jobs that they had held for years at CNN or some other news organization. This is serious business for the workers who were impacted. But for those of us watching from the sidelines, this corporate about-face is so absurd that it's humorous. Unsurprisingly, the Internet has got jokes about this... --------------------------------------------------------------- Recommended Link: [Do you own these popular stocks?]( My stock market "early warning system" is flashing red right now. Just like when I called the 2020 crash three weeks early... Or when I predicted the demise of Peloton. Or the time I uncovered over 50 publicly-traded scam companies, on behalf of the FBI. Inflation is here... Interest rates are going up... And I believe there are 14 currently popular stocks all investors should get rid of immediately. If you [click here]( I'll give you the names of a few of those companies for free. --------------------------------------------------------------- CNN+ isn't the only one down and out... Yesterday, Bill Hwang of Archegos Capital was arrested along with his fund's CFO, Patrick Halligan. The two face 11 criminal charges ranging from market manipulation to securities fraud and racketeering conspiracy. Hwang faces up to 380 years in prison if he is convicted on all 11 charges. The former hedge fund manager ran billions of dollars out of his family office, his own funds pumped up by the billions he had borrowed from prime brokerage desks across Wall Street. He had huge leveraged positions in a number of stocks, the former Discovery coincidentally among them. When one of his biggest bets, then-ViacomCBS – which now trades as Paramount (PARA) – started to go against him, the whole house of cards began to collapse. Hwang's indictment sheds much light on what was going on in the final days of Archegos, which Bloomberg summarizes nicely here... His demise came after ViacomCBS, one of Hwang's big holdings, began to fall after selling new stock. Archegos likely couldn't make the margin calls – setting off panic inside the firm and at the banks that had lent Hwang billions. Hwang's response: He demanded his traders buy the stock. Then buy some more. In the end, Archegos added $900 million in a day. Scott Becker, the chief risk director, protested. The firm's head trader, William Tomita, made his own plea to Hwang, only to return with his tail between his legs: "I spoke to Bill and he said to just keep working the orders." (Both have pleaded guilty and are cooperating with authorities.) It didn't work, and Archegos' leadership team prepared for margin calls the next day. Hwang had other ideas, instead encouraging traders to use the last of the firm's cash to manipulate certain stocks to prop up their price. All the while, Becker was pulling as much money from Wall Street banks as possible, falsely claiming that the family office had $9 billion in excess cash while it was running on fumes. It's a crazy story... But apparently the market manipulation had been occurring even before the fund started to unravel. Even back in better times, Hwang appeared to be strategically entering orders to create trading patterns that would pump up interest in a stock. As Bloomberg explains... In some cases, Hwang would instruct traders to sell a stock or enter a short position in the morning, which gave the family office more trading capacity to buy when it needed to boost the price. "Hwang referred to this practice as using 'bullets,'" according to the indictment. "Hwang directed the traders to use the 'bullets,' or trading capacity, at opportune moments that would create upward pressure on the stock price. Hwang employed this strategy with increasing frequency as counterparties began to curtail or restrict his access to additional trading capacity." It should be an interesting trial! Another name from the news in early 2021 is also back, this time with an apology... Earlier this month, Gabe Plotkin, the manager of Melvin Capital – the hedge fund that got absolutely run over in the great GameStop (GME) and AMC Entertainment (AMC) short squeezes of early 2021 – launched a plan to start making money back... for himself and his analysts. Plotkin proposed to investors that he start charging performance fees – commonly referred to as "carry" – even though his hedge fund was sitting down 52% from where it had started in 2021. Hedge funds typically charge a fixed fee, usually 1% to 2% of assets under management ("AUM"), and keep part of the profits, typically 20%, as a performance fee – although sometimes this incentive fee can be 30% or higher. It's obviously a highly profitable structure, but one protection that investors in these funds do have is that these performance fees don't kick in if the fund is below its highwater mark. Simply put, if you put $100 into a hedge fund, your highwater mark is $100. If your account drops below $100, you don't pay that 20% fee. A fund like Plotkin's that is down 50% needs to be up 100% to hit that highwater mark and start collecting performance fees again. Without those performance fees, neither the manager nor any of the analysts, traders, or support team that works for the fund will get paid like they are used to. To get around this high hurdle, Plotkin proposed to existing investors that they agree to start paying performance fees again, even though he had lost half their money. In exchange for charging these fees, Plotkin promised to throw a few bones to investors, such as shrinking the size of the fund, which would presumably leave it nimbler to make good returns going forward. But shrinking to a proposed $5 billion in assets hardly would have left Melvin Capital super nimble – $5 billion is just not that small. The proposal was the first of its kind and frankly was an exercise in "heads I win, tails you lose." It was preposterous, and thankfully investors had the good sense to balk at it. After getting a bad response to his proposal, Plotkin issued an apology last Sunday. In a note to clients, Plotkin wrote... I am sorry. I got this one wrong. I made a mistake. I apologize. In hindsight and despite our intentions, we recognize now that we focused on future returns and team continuity without sufficient consideration of your investment losses. The greed and lack of self-awareness of Plotkin's proposal was jaw-dropping. Good for investors for rejecting it. In the mailbag, more reader reactions to Netflix... Do you think Warner Bros. Discovery did the right thing by pulling the plug on CNN+? Do you think Bill Hwang deserves to go to jail if the allegations of stock manipulation prove true? And are you as floored as I am that Gabe Plotkin made such an egregious proposal in the first place? [Click here](mailto:feedback@empirefinancialresearch.com?subject=Feedback%20for%20Berna) to send an e-mail with your thoughts. "Dear Berna, Re: Netflix, here in Perth, Australia I know of at least one extended family who share a single Netflix subscription across five separate households. No wonder Netflix is losing money when it gives away its services for free!! "I also think that provided the uplift is not significant, customers will be prepared to pay more for an ad-free service than one that is supported by advertising" – Gary M. "Hi Berna, I am bullish on Netflix too, however there are no short-term catalysts, it might not be until the fall for a rally. Also, the stock market may enter a bear market further driving down the price. "Overall, I agree with your thesis on the company and believe the share price is attractive at current levels. They will add subscribers again at some point – maybe even later this year. It's hard to believe this company has traded on subscribers for two decades!" – Chris W. Berna comment: I agree that making money with NFLX shares will require some patience. The short-term catalysts are few... I'm personally thinking about this one over the long term, with returns being judged by years... not weeks or months. Regards, Berna Barshay April 28, 2022 If someone forwarded you this e-mail and you would like to be added to my e-mail list to receive e-mails like this every weekday, simply [sign up here](. © 2022 Empire Financial Research. All rights reserved. Any reproduction, copying, or redistribution, in whole or in part, is prohibited without written permission from Empire Financial Research, 601 Lexington Ave., 20th Floor, New York, NY 10022 [www.empirefinancialresearch.com.]( You received this e-mail because you are subscribed to Empire Financial Daily. [Unsubscribe from all future e-mails](