Just a year ago, Warner Bros. Discovery was riding high on the pop-culture tsunami that was “Barbie.” In recent days, it’s become clear that the pink glow from that box office juggernaut has long since faded.
Since the start of the year, WBD has been enmeshed in big public battles seemingly of its own making. It has gone to legal war with the NBA. It keeps drawing a hard line with Madison Avenue on upfront ad sales pricing in an era when such tactics are not well received. The reporters at WBD-owned CNN are demoralized. And in the months to come, the company is steeling itself for frosty negotiations with MVPDs that will no doubt push back on audience declines at its cable networks, the likely loss of the NBA and decisions that put good chunks of the company’s linear programming on Max.
Last week, WBD disclosed that it wrote off $9.1 billion in value for its collection of cable channels — a nod to the harsh reality that the days of double-digit annual growth in affiliate fees and advertising are not coming back.
In a call with investors last week, WBD CEO David Zaslav attributed the declines to “a generational disruption impacting our industry,” noting that “even two years ago, market valuations and prevailing conditions for legacy media companies were quite different than they are today.”
Wall Street’s faith in Zaslav’s ability to turn the ship around is dwindling. The company’s stock price has sunk to all-time lows. And chatter is building around the prospect of a breakup of Warner’s assets.
“In our view, the current composition as a consolidated public company is not working,” wrote Jessica Reif Ehrlich, an influential analyst at BofA Securities, in July. “At current levels, we believe exploring strategic options for WBD would create more shareholder value vs. the status quo.” She added: “All options need to be on the table.”
Given the storm enveloping beloved brands such as HBO, TNT, CNN and Warner Bros., a management shake-up has got to be coming, right?
Wrong. Zaslav is unlikely to exit anytime soon. The company’s overall financial health is better than it appears, with executives committed to maintaining an investment-grade rating. Zaslav and his key lieutenants have focused tightly on WBD’s balance sheet, which is filled with $37 billion in debt that was loaded on the company’s shoulders when Discovery Communications merged with AT&T’s WarnerMedia in April 2022. Most of it doesn’t come due for another 15 years — some of it is even on a 40-year time line.
Even so, some of the cost cutting has rankled key constituencies. Team Zaslav scrapped projects viewed as marginal — including completed movies like “Batgirl” and the digital site CNN+ — and there’s a sense among staffers at the operating units that the executives have cut into bone. WBD’s third major round of layoffs in as many years began last month when it confirmed plans for 1,000 pink slips.
Zaslav’s overarching strategy is to keep the company together through the storm of streaming disruption while building the Max platform into a global player on the scale of Netflix and Disney+. That’s why he spent so much time on the Q2 call talking about Max’s launch in markets in Latin America and Europe.
Meanwhile, Zaslav’s famously hard-nosed approach to negotiations has alienated important contributors to WBD’s cash flow: advertisers, sports leagues, Hollywood talent and even some of the journalists who work for CNN. A cloud of ill will can be a detriment to the long-term health of a company where the main asset is creativity, not the TV networks or digital properties that display it.
Little wonder that members of WBD’s talent roster seem despondent. Yes, “Inside the NBA” host Charles Barkley recently signed a new deal to stay at TNT Sports, but his public dismay at the company’s inability to hold on to the NBA — after a more than 30-year partnership — speaks volumes.
“The challenge that organizations have is they start to think they are in the business of managing and manipulating numbers on spreadsheets,” rather than building new business by studying the behavior and interests of customers and employees, says Scott D. Anthony, a professor at Dartmouth’s Tuck School of Business who studies the challenges of disruption. “Once that happens, the game is pretty much over.”
Advertisers have groused about WBD’s sales tactics for years. During the most recent upfront market, when TV networks try to sell the bulk of their ad inventory, Warner insisted media agencies commit to “growth,” or spending more dollars than were committed in 2023 — a tall order given the shrinking economics of cable TV.
But two media-buying executives familiar with the recent negotiations say Warner has been particularly unrealistic. WBD said it saw “strong” upfront commitments in sports and increases in streaming, but did not offer a dollar figure for overall commitments tied to its broader portfolio.
It’s one thing to “beat up” a cable distributor or sports league over nickels and dimes once or twice a decade, says one buyer, and it’s quite another to come to the upfront table every 12 months with similar behavior. “I don’t think he understands that it’s a different kind of negotiation,” this buyer says of Zaslav, echoing sentiments that advertisers don’t like being told the millions they spend aren’t satisfactory.
Warner “makes it difficult across multiple layers of people,” this executive adds. “I can’t say that I enjoy dealing with Warner Bros.”
