Pressure mounting on Warner Bros. Discovery CEO David Zaslav to deliver value for shareholders

Warner
Bros.
Discovery
CEO
David
Zaslav
needs
a
win.
Soon.

Since

merging
Discovery
with
WarnerMedia
in
2022
and
immediately
slashing
billions
in
costs,
Zaslav
has
struggled
to
convince
shareholders
that
his
company
is
a
worthy
investment.

Warner
Bros.
Discovery
shares
have
fallen
about
70%
since
April
8,
2022,
the
day
the
merger
closed.
His
tenure
has
been
defined
by
implementing

thousands
of
layoffs,
cutting
movies
and
TV
series

for
tax
efficiencies,

killing
off
CNN+
a
month
after
its
launch,
hiring
and

firing
CNN
CEO
Chris
Licht,
getting
heckled
at
Boston
University’s
commencement
by
students
chanting
“pay
your
writers”
during
last
year’s
writers’
strike,
and

suing
the
NBA
after
the
league
chose
not
to
renew
media
rights
with
his
company
following
nearly
40
years
in
business
together.

Making
matters
worse
for
him,
Zaslav
has

long
been
one
of
the
highest
paid
CEOs
in
the
country.
His
2023
compensation
rose
26.5%
to
almost
$50
million.
Zaslav’s

bonus
is
tied
to
increasing
free
cash
flow
and
reducing
debt,
a
mandate
driven
by
John
Malone,
the
media
mogul
and
influential
board
member
who
has
championed
Zaslav,
first
at
Discovery
and
now
at
Warner
Bros.
Discovery,
which
has
a
market
capitalization
of
about
$17
billion
and
$37.8
billion
in
debt.

The
stock
dropped
roughly
9%
in
trading
Thursday.
The
company
took
a
whopping

$9.1
billion
impairment
charge
Wednesday
given
the
loss
of
value
in
its
linear
cable
networks
—
which
still
accounts
for
more
than
100%
of
the
company’s
adjusted
EBITDA.
That
means
the
rest
of
the
company
lost
money.

Warner
Bros.
Discovery
blamed
“the
continued
softness
in
the
U.S.
linear
advertising
market
and
uncertainty
related
to
affiliate
and
sports
rights
renewals,
including
the
NBA”
for
the
size
of
the
write-down.

That’s
not
music
to
investors’
ears.

Part
of
the
argument
for
why
Discovery
merged
with
WarnerMedia
was
that
its
diversified
suite
of
content
would
be
a
“wonderful
partner
to
advertisers,”
as

Zaslav
said
when
the
deal
was
initially
announced
in
2021.

Injecting
uncertainty
into
the
company’s
valuation
because
of
a
loss
of
NBA
rights
also
rings
hollow
given
Zaslav’s

claim
in
November
2022
that
“we
don’t
have
to
have
the
NBA.”

“The
write-down
signifies
that
this
company
clearly
overpaid
for
the
linear
assets
as
part
of
the
WarnerMedia
merger
and,
given
the
growing
pressures
on
the
linear
ecosystem,
it
also
raises
a
question
on
what
the
future
cash
flows
will
be
on
these
assets
after
the
potential
of
losing
the
NBA,”
said
Robert
Fishman,
an
analyst
at
research
firm
MoffettNathanson.

Nonetheless,
Zaslav
projected
a
message
of
confidence
during
the
company’s
earnings
conference
call
Wednesday.

“We
feel
good
about
where
we
are,”
Zaslav
said.
“We
have
to
look
at
all
and
consider
all
options,
but
the
No.
1
priority
is
to
run
this
company
as
effectively
as
possible.”

While
the
company
continues
to
make
progress
adding
streaming
subscribers
(gaining
3.6
million
in
the
quarter)
and
moving
closer
toward
sustained
profitability,
the
decline
in
linear
revenue
and
associated
earnings
continues
to
outweigh
the
growth
in
its
flagship
direct-to-consumer
service,
Max.

Warner
Bros.
Discovery’s
failure
to
gain
traction
over
the
past
two
years
suggests
it
could
be
a
prime
target
for
an
activist
investor,
who
could
conceivably
push
for
Zaslav’s
ouster
or,
at
the
least,
ask
for
the
divestment
of
assets
such
as
CNN
or
the
gaming
division.

The
company
also
owns
a
number
of
other
valuable
businesses,
including
HBO,
Warner
Bros.
studio
and
DC
Comics.
LightShed
analyst
Rich
Greenfield
has
argued
it
should
dramatically
scale
back
its
direct-to-consumer
aspirations
and
focus
on
licensing
content
to
other,
larger
streamers.

While
Zaslav
openly
discussed
seeking
partnerships
and
mergers
during
Wednesday’s
earnings
conference
call,
finance
chief
Gunnar
Wiedenfels
brushed
away
talk
of
potentially
breaking
up
the
company,
citing
the
benefits
of
“one
Warner
Bros.
Discovery.”

“Every
day
I’m
seeing
evidence
everywhere
in
the
business
of
the
benefits
of
those
strategies,”
Wiedenfels
said.

There
are
two
clear
hurdles
for
a
potential
activist.
The
first
is
Malone’s
influence
over
the
board.
It’s
possible
an
activist
fund
may
be
scared
away
from
angling
for
board
seats
if
it
thinks
Malone’s
power
is
so
great
that
any
suggestions
will
be
rendered
pointless.

The
second
is
that
Warner
Bros.
Discovery
is
arguably
already
pursuing
the
correct
strategy
given
the
company’s
enormous
debt
load
compared
to
its
market
valuation.
If
Zaslav
is
also
looking
for
buyers
for
Warner
Bros.
Discovery,
an
activist’s
pitch
to
sell
the
company
may
not
be
additive.

Warner
Bros.
Discovery
generated
more
than
$6
billion
in
free
cash
flow
last
year,
buoyed
by
a
drastic
drop
in
content
spending
from
the
writers’
and
actors’
strikes.
That
number
will
drop
to
about
$4
billion
this
year
as
Hollywood
has
gotten
back
to
work,
according
to
MoffettNathanson.

Investors
will
surely
want
to
know
how
losing
the
NBA
will
impact
free
cash
flow
in
future
years,
assuming
Warner’s
lawsuit
doesn’t
net
the
company
a
package
of
games.
But
it’s
possible
that
Malone
and
Zaslav’s
strategy
of
focusing
on
streaming
profitability
and
costs
cuts
will
eventually
pay
off.

Still,
it
seems
clear
the
pressure
on
Zaslav
to
show
that
he
can
deliver
value
is
mounting.
Looking
at
its
competitors,
Disney’s

media
properties
appear
on
the
upswing
after
several
years
of
pain,
and


Paramount
Global
has
pulled
the
rip
cord
and

agreed
to
a
merger
with
Skydance
Media.

Part
of
why
Zaslav
fired
CNN’s
Licht
last
year
is
the

narrative
around
him
turned
too
toxic.

Now
Zaslav
in
danger
of
falling
into
the
same
trap.

—
CNBC’s
Rohan
Goswami
contributed
to
this
article.

WATCH:
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