A new era for entertainment

The $43 billion merger of Discovery and WarnerMedia marks a seminal moment for the entertainment industry, which until now has struggled to navigate the balance between its profitable traditional assets and its streaming future.

Why it matters: Now that a handful of dominant players in streaming have emerged, smaller companies will face more pressure to scale, sell or become a full-time content arms-dealers. Bigger companies will need to prove that they're willing to invest enough to truly compete with Big Tech.

Driving the news: Warner Bros. Discovery CEO David Zaslav has immediately gotten to work, trying to seamlessly manage the integration of Discovery, a cable company, and WarnerMedia, which has much deeper roots in Hollywood.

• On Monday, the new board of the combined company met for the first time to discuss the new resolutions, bylaws, and charter for the combined company, a source familiar with the meeting tells Axios. Billionaire media mogul John Malone, a key stakeholder in the combined company, was in attendance.
• Zaslav also met with WarnerMedia employees in New York on Monday to discuss the transition. On Monday evening, he traveled to CNN's Washington bureau for an informal meet and greet alongside CNN’s new chief Chris Licht before heading to Atlanta to meet with Turner employees on Tuesday.
• Later this week, Zaslav and his executive team will travel to Los Angeles to hold the company's first global town hall. Zaslav recently moved to Los Angeles as a signal that he's invested in WarnerMedia's creative operations.

Between the lines: Zaslav, a smooth operator with sharp people skills, will need to navigate these changes against the backdrop of a skeptical employee base.

• WarnerMedia employees have already been through several rounds of layoffs and executive departures tied to its chaotic merger with AT&T in 2018.
• Last week, several WarnerMedia executives announced their departures ahead of a new leadership team being named at the combined company.

Be smart: Aside from retaining a few key WarnerMedia creative executives, Zaslav and his team have tried to carefully construct a narrative that they care more about Hollywood's creative culture that WarnerMedia's previous owners.

• In one of his first moves as then WarnerMedia CEO, John Stankey famously told HBO brass (including its beloved CEO Richard Plepler) it had to get "bigger and broader" to compete with Netflix. Plepler bristled at this notion and would quit six months later.

Yes, but: The merger will come with roughly $3 billion in synergies, executives say, which means layoffs are undoubtedly part of the future.

• Sources tell Axios that the company isn't planning to announce any major layoffs in the next month, leading up to its first-ever combined upfront advertising presentation to Madison Avenue on May 18.
• Investment and projections for CNN+, CNN's new streaming service, are expected to be cut dramatically, in response to a low adoption rate, two sources tell Axios. The new company's leadership team still has yet to decide the ultimate fate of CNN+. CNN's new boss, Chris Licht, will start May 1st.

By the numbers: The combined value of the Discovery and WarnerMedia at Monday market close was $59.47 billion, according to an Axios estimate.

• By comparison, Paramount — the new name for ViacomCBS — has a market cap of $23.4 billion, and Comcast — home to NBCUniversal — has a market cap of $215.83 billion.
• Other smaller entertainment companies that have toyed with their own standalone streaming services, like AMC Networks, will need to become a part of larger bundles if it wants to stay competitive for subscribers.

• "Simply put, HBO Max and discovery+ (or the combination of the two services together) should become a more relevant service for a wider group of people in the world than WBD achieves today through linear cable networks," MoffettNathanson analyst Michael Nathanson wrote in a Monday research note.

Be smart: The merger between the WarnerMedia and Discovery comes with roughly $55 billion in debt added to the balance sheet, a challenge Zaslav will need to carefully navigate now that Wall Street has put more pressure on streaming giants to actually make money, not just grow their user bases.

The big picture: The past few years have brought more consolidation to Hollywood than ever before, as companies push to scale their assets to meet the streaming standards set by tech giants like Netflix, Amazon, and now Apple.

• Apple shook Hollywood's establishment last month when it won the Best Picture title before Netflix, which has been trying to charm Tinseltown for years. It was the first time a streaming-owned movie took the Oscars' top prize.

What to watch: Now that a handful of dominant players in streaming have emerged, smaller companies will face more pressure to scale, sell or evolve.

• Some firms, like Sony Pictures Entertainment — a popular acquisition target in its own right — have opted to build their business around licensing content to bigger players.
• Others, like Paramount+ and NBCUniversal's Peacock, will need to either invest in buying more companies to scale, or sell or combine.
• Discovery will need to navigate how it plans to bundle its current streaming offerings to better compete with the likes of Disney and Netflix. Executives have already confirmed they plan to roll up Discovery+ and HBO Max.

Go deeper: Big media to get a lot bigger