There is increased pressure on Warner Bros. Discovery CEO David Zaslav to deliver value for shareholders. 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.
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Warner Bros. Discovery shares have fallen about 70% since April 8, 2022, the day the merger closed with WarnerMedia.
Warner Bros. Discovery CEO’s turbulent tenure
David Zaslav 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. He was also responsible for hiring and firing CNN CEO Chris Licht, jibbed at Boston University’s commencement by students chanting “pay your writers” during last year’s writers’ strike. He also sued NBA after the league chose not to renew media rights with his company following nearly 40 years in business together.
Zaslav’s compensation
The Warner Bros. Discovery CEO has long been one of the highest paid in the country. Zaslav’s compensation for 2023, rose 26.5% to almost $50 million. Zaslav’s bonus is tied to increasing free cash flow and reducing debt,
Warner Bros. Discovery, has a market capitalization of about $17 billion and $37.8 billion in debt.
Warner Bros. Discovery losing money
Warner Bros. Discovery 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. 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.
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.”
Target for an activist investor
The company continues to make progress adding streaming subscribers and moving closer toward sustained profitability. Though 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.
David Zaslav’s strategy
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.
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.
Warner Bros. Discovery shareholders will want to know how losing the NBA will impact free cash flow in future years. But it’s possible that Malone and Zaslav’s strategy of focusing on streaming profitability and costs cuts will eventually pay off.
Mounting pressure on Warner Bros. CEO
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.
As competitors like Disney and Paramount Global make strategic moves to enhance their media portfolios, the pressure on Zaslav to demonstrate that his cost-cutting and streaming-focused strategy can deliver long-term value is mounting. If Zaslav cannot turn the tide, he may find his own leadership under threat.
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