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Viewers of the NBA basketball playoffs and French open tennis have witnessed many celebrities from the VIP box, from Moviemaker Spike Lee to the cinematic hot shot Timothy Chalamett. And sitting among them was David Zaslav, the boss of Warner Bros Discovery. It was probably more suits than a superstar, but in itself was a financial news maker.
He announced Monday that the company he runs will be split into two. We discussed it almost a year ago. A streaming platform, including HBO and Warner Bros., and Hollywood Studios, live in one company. This will continue to be done by Zaslav, but PAY-TV networks such as CNN and Discovery live in other companies.
Zaslav is correct to be more creative than WBD. Since he merged Time Warner and Discovery Communications in 2022 to create the company, organizing into group leadership that expanded the CEO role in Discovery, the stock has fallen by 60%. Shareholders are restless: They recently voted for Zaslav’s gorgeous $52 million salary package.
But while a cleaner structure should please Wall Street, half of both have challenges. Streaming is growing rapidly, but it’s expensive to build and faces tough rivalry between Walt Disney and Netflix. Meanwhile, pay television generated $8 billion, the group’s $8 billion last year with EBITDA, but investors aren’t really valuing the melting of business and subscribers.
After that, you will have $36 billion in debt, and you will need to share it with the two new companies, as well as overhead and expenses. Zaslav plans to buy back some of its bonds, many of which are trading at around 70 cents in dollars as they were issued by Time Warner and Discovery at lower interest rates. WBD probably hopes it can buy them back, not more. Hedge funds holding debt may not agree.
Throughout the media world, large groups are protected for the fight. Comcast is spinning its TV network into a new company called Versant. Paramount Global sells itself to Skydance Media. Fox and AT&T smartly sold the old school media business with top ratings. Disney and Comcast have the advantage of an additional ballast from the theme park business.
So even a cleaned-up WBD has a hard time reaching something like hegemony. The merger of Discovery with Time Warner three years ago was to establish a company that stood between A-lists when it came to Hollywood and sports entertainment. Appearing in the best seats at Zaslav’s best events, his excessive pay makes it seem like the plan was successful. Shareholders sitting in cheap seats have a different perspective.
sujeet.indap@ft.com
