David Zaslav attends the world premiere of “The Flash” in Hollywood, Los Angeles, California, USA on June 12, 2023.
Mike Black | Reuters
Warner Bros. Discovery Executive David Zaslav needs a win. soon.
since Discovery Channel and WarnerMedia merge Zaslav immediately cut billions of dollars in costs in 2022, but he has struggled to convince shareholders that his company is worth investing in.
Warner Bros. Discovery stock has fallen approximately 70% since April 8, 2022 (the day the merger closed). His term of office is through the implementation of Thousands of jobs laid offedit movies and TV series Improve tax efficiency, Kill CNN+ One month after launch, recruiting and Fire CNN CEO Chris Lichterduring last year’s writers’ strike, at Boston University’s commencement, students chanted “pay your writers” heckles, and Sue the NBA His company, which it has worked with for nearly 40 years, came after the league chose not to renew media rights with his company.
Zaslav makes things worse for a long time One of the highest paid CEOs in the country. His compensation in 2023 will increase by 26.5% to nearly $50 million. Zaslav’s bonus Tied to increasing free cash flow and reducing debt, it’s being driven by media mogul and influential board member John Malone, who has backed Zaslav, first at Discovery Channel and now at Warner Bros. Discovery Channel, The latter has a market capitalization of about $17 billion and $37.8 billion in debt.
The stock fell about 9% in Thursday trading. The company paid a huge price $9.1 billion impairment charge On Wednesday, the network still accounted for more than 100% of the company’s adjusted EBITDA given the loss of value in its linear cable network. That means the rest of the company is losing money.
Warner Bros. Discovery attributed the size of the writedown to “continued weakness in the U.S. linear advertising market and uncertainty related to league and sports rights renewals, including the NBA.”
This is not good news for investors.
Discovery’s rationale for merging with WarnerMedia was, in part, that its diverse content suite would be a “great partner for advertisers” because Zaslav says The deal was first announced in 2021.
The uncertainty that the loss of NBA rights would bring to the company’s valuation also rings hollow given Zaslav’s approach. Claims November 2022 “We don’t have to own the NBA.”
“The writedown shows that the company clearly overpaid for its linear assets as part of the WarnerMedia merger, and it also raises the question of how much these assets are being consolidated given the increasing pressure on the linear ecosystem. What will be the future cash flow after?
Still, Zaslav delivered a message of confidence during the company’s earnings call Wednesday.
“We feel good about where we are,” Zaslav said. “We have to look at it holistically and consider all options, but the No. 1 priority is to run this company as efficiently as possible.”
activist material
While the company continues to make progress in adding streaming subscribers (3.6 million in the quarter) and getting closer to sustained profitability, declines in linear revenue and related earnings continue to outpace growth in its flagship direct-to-consumer service, Max.
Warner Bros. Discovery Channel’s failure to gain traction over the past two years suggests it could become a prime target for activist investors who could push for Zaslav’s ouster or at least demand divestment of assets like CNN or gaming.
The company also owns many other valuable businesses, including HBO, Warner Bros. Studios and DC Comics. LightShed analyst Rich Greenfield believes the company should significantly scale back its direct-to-consumer aspirations and focus on licensing content to other big streamers.
While Zaslav openly discussed pursuing partnerships and mergers during Wednesday’s earnings call, finance chief Gunnar Wiedenfels dismissed talk of a possible breakup of the company, noting that ” A Warner Bros. Discovery benefit.
“Every day I see evidence of the benefits of these strategies in business,” Weidenfels said.
For would-be activists, there are two obvious obstacles. The first is Malone’s influence on the board of directors. An activist fund might be intimidated from vying for a board seat if it believes Malone’s power is so great that any advice is moot.
Second, Warner Bros. Discovery is arguably already pursuing the right strategy, considering the massive debt load it carries relative to its market valuation. If Zaslav is also looking for a buyer for Warner Bros. Discovery, lobbying by activists to sell the company may not have an additional role.
Last year, Warner Bros. Discovery Channel generated more than $6 billion in free cash flow as a writers’ and actors’ strike led to a sharp drop in content spending. MoffettNathanson said that number will drop to about $4 billion this year as Hollywood resumes work.
Assuming Warner’s lawsuit doesn’t net the company a package of games, investors will certainly want to know how losing the NBA will impact free cash flow in the coming years. But Malone and Zaslav’s strategy of focusing on streaming monetization and cutting costs may ultimately pay off.
Still, Zaslav is clearly under pressure to prove he can deliver value, and that pressure appears to be growing. Look at its competitor, Disney media properties An upward trend follows several painful years, and Paramount Worldwide The tear cord has been pulled and Agree to merge In partnership with Skydance Media.
Zaslav fired CNN’s Licht last year in part because the narrative surrounding him It became too toxic.
Now Zaslav is in danger of falling into the same trap.
—CNBC’s Rohan Goswami contributed to this article.
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