Warner Bros. Discovery CEO Zaslav faces pressure to create value | Wilnesh News

Warner Bros. Discovery Executive David Zaslav needs a win. soon.

Since Discovery merged with WarnerMedia in 2022 and immediately cut billions of dollars in costs, Zaslav has been trying 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 efficiencyshut down CNN+ a month after it launched, hired and fired CNN CEO Chris Lichter , and during last year’s writers strike, was met with students at Boston University’s graduation ceremony who chanted “Pay you Writers,” and sued the NBA after the league chose not to renew his media rights after nearly 40 years 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 on Wednesday took an impairment charge of up to $9.1 billion due to the loss in value of its linear cable network, which still accounts for more than 100% of the company’s adjusted EBITDA. The company 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 broadcast rights would bring to the company’s valuation also rings hollow given Zaslav’s claim in November 2022 that “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.”

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.

The company’s failure to launch 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 the divestment of assets like CNN or its gaming unit.

Warner Bros. Discovery 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, Chief Financial Officer Gunnar Wiedenfels dismissed talk of a possible split of the company, noting that “one Warner Brothers Discovery Corporation” benefits.

“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 After several years of pain, the media industry is on the upswing, and Paramount Worldwide The ropes have been pulled and a merger with Skydance Media has been agreed.

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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