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The optimistic launch and ignominious end of CNN+

by Rita Gunther Mcgrath: Associate professor at Columbia Business School.
The announcement that, after an expenditure of something like $300 million, CNN was going to pull its CNN+ streaming service after just a month in, sent shock waves through the media and entertainment ecosystem. Coming on the heels of a setback for streaming darling Netflix, it looks as though the media equation is set for a major inflection point. And how could I resist speculating about the latest entry to my flops file?

It seemed like a good idea at the time...

In a announcement in the summer of 2021, CNN formally announced the expected launch of a venture that must have been in the works for a bit. Scheduled for launch in 2022, the company was already purportedly hiring hundreds of people and developing many hours of programming for the fledgling service. Senior executives at the company sure seemed bullish:

“Jeff Zucker, the chairman of WarnerMedia News and Sports and president of CNN Worldwide, portrayed CNN+ as the evolution of video news and the start of a new era for the company. “CNN invented cable news in 1980, defined online news in 1995 and now is taking an important step in expanding what news can be by launching a direct-to-consumer streaming subscription service in 2022,” Zucker said in a statement. The executive in charge of CNN+, chief digital officer Andrew Morse, said “this is the most important launch for CNN since Ted Turner launched the network in June of 1980.”

Why did they think such a major new venture might make sense? Well, cord-cutting viewers were dropping subscriptions to cable (and a subsequent survey found that 56% of people who subscribe to a cable package say news is “very important” versus 32% among cord-cutters). Fox, whose main channels top CNN’s reach, had launched the subscription service Fox Nation in 2018 and seemed pleased with its performance among very engaged Fox followers. CNN assumed that streaming customers would be hungry for deeper engagement with the talent and more extensive coverage of stories that were important to them.

At the time of the launch, Andrew Morse, Executive VP and Chief Digital Officer, passionately believed that what the service offered would be unlike anything offered by rivals. As he said at the time, “We are not trying to launch just another streaming service. What we are building is the most essential and engaging direct-to-consumer news subscription service. There is not another news product like this on the market. ... We’re not trying to compete with entertainment streaming services.”

This reminds me so much of a project I worked on for the ill-fated AOLTimeWarner company – at the time, the idea was to make their combined offers as indispensable as a daily coffee. It was wishful thinking for them, and evidently wishful thinking for CNN+.

Beware committing when you’re working with assumptions, not knowledge

In the launch announcement, a phrase caught my eye that often serves as a warning (especially when it comes to big flashy ventures). And that was the commitment on the part of senior leaders that the service would definitely “launch in the first quarter of 2022.”

As an article at the time of the launch noted, “What they didn’t want to do is delay the launch. “We have been building this product for quite a while. We have a launch plan,” Morse said. “We have a schedule. We have commitments that we’ve made. We’re ready, so we’re very excited to launch the service.”

Warning bells start to flash. Back to the recipe for landing in my flops file: Untested assumptions, taken as facts. Few opportunities for low-commitment testing. Leaders personally associated with a given expression of the strategy (such as a firm launch date). All the money up front. Huge public commitments that make it very hard to change course.

What would have to be true for this to work out?

A core element of the discovery-driven planning process is to ask the question, “what would have to be true” for a venture to meet its goals. For a venture launching in an established firm, I usually frame this in terms of its ability to make a meaningful contribution to the top-line of the mothership.

According to Pew Research, CNN’s revenue is about $1.7 billion annually. Let’s say this big new thing, in order to contribute meaningfully at maturity, has to have the potential to add 10% to the top line for the company, or $170,000,000. We know the subscription price they planned to charge was $5.99/month per subscription, or roughly $72/year. Do the math, and that suggests they are going to need 2,361,111 subscribers for the business to achieve a respectable standing within the parent company. These numbers aren’t meant to be precise, but they are meant to be directionally correct.

Now here is where it gets interesting. The leadership at CNN are certainly not stupid, and they must have thought that they could pick up this many subscribers as the business launched. This is where the discipline of rigorously testing your assumptions for evidence becomes critically important. This one is a cautionary tale for the ages.

To whit, as an article in the National Review recounts, “CNN executives, with help from consulting firm McKinsey, originally expected to bring in around 2 million subscribers in the U.S. in the service’s first year and 15-18 million after four years.”

Say WHAT?

The parent channel, CNN, averages about 773,000 viewers across a typical day, according to recent research. So you would have to believe that CNN+ was going to be such a hit that it would more than double the footprint of the parent company in subscriber terms in short order. That’s a pretty telling assumption to make.

And McKinsey? The endorsement must have carried a lot of weight.

As Oliver Staley writes in Quartz, “Having McKinsey vouch for a decision sends a signal to the board and investors that management has done its due diligence, and that the best consultants money can buy have signed off on the move, whether it’s a merger or new product launch.”

A reminder: Just because McKinsey is behind the assumptions in your plan doesn’t make them any less assumptions – they’re just better-looking assumptions with some very cool PowerPoints to back them up.

That rumbling noise you hear? Shifting political territory

This story also has some juicy corporate political inside baseball to it. The main project’s champion, CNN President Jeff Zucker, was summarily dismissed in a firing that observers compared to a “political assassination” by WarnerMedia CEO Jason Kilar.

WarnerMedia was the parent company of CNN which itself was owned by AT&T and frictions between the two men had been public for years.

This all took place in February of 2022 (remember, the promised launch date for CNN+ was the “first quarter” of the year – in fact a big launch party took place on March 28!).

Meanwhile, AT&T, having finally realised that its vision of becoming an entertainment juggernaut was delusional, had announced in May of 2021 that it would be selling off its WarnerMedia properties to Discovery. That deal was finally consummated in February of 2022 in a $43 billion agreement that would result in the company being merged with Discovery.

Still with me on the timeline?

This brought a major player into the mix, David Zaslav, the CEO of Discovery. Now that the spinoff was complete, he became the Warner Bros. Discovery CEO. In a series of moves that Axios describes as a “takeover,” Zaslav lost little time in shutting the venture down, not even giving Zucker’s replacement at CNN, Chris Licht, time to arrive at his new job!

The hurried launch of the CNN+ service before the arrival of a new sheriff in town (remember that “first quarter promise”?) appears to have “ruffled a few feathers,” ironically observes the New York Times Dealbook team.

An inflection point for streaming?

Perhaps a bigger inflection point is at play here, as well. Kevin Westcott, a Principal at Deloitte who studies such things, observed around the time that CNN+ launched that we were in for a dramatic “re-aggregation.” His firm, he observed, “had identified more than 300 unique streaming services in the U.S., but the average household had only four of them. There was just too much out there.”

Maybe we are back to Jim Barksdale’s observation that there are two ways to make money in business – bundling and unbundling. And perhaps we are at max streaming – I mean, how many micro subscriptions does anyone really have time for, let alone budget?

Have we learned anything at all?

So what can we learn from all this? Some thoughts:
  • Launching a venture because it suits your needs without meeting the needs of a customer is usually fatally flawed.
  • Making big splashy investments before testing the underlying assumptions is expensive and often disastrous.
  • Looking to consultants to confirm what you desperately want to be true is self-deceptive.

Useful resources:
Rita Gunther McGrath
Rita McGrath works extensively with leadership teams in Global 1000 companies who wish to develop their capability to drive growth.
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