Warner Bros. Discovery CEO’s Bold Moves Leave Many Partners Scrambling

Just a year ago, Warner Bros. Discovery (WBD) was experiencing significant success with the release of “Barbie,” a box office sensation. However, recent developments indicate that the glow from that success has waned considerably.

Since the beginning of the year, WBD has found itself embroiled in numerous public disputes. From entering a legal battle with the NBA to taking a firm stance with Madison Avenue on upfront ad sales pricing, the company’s aggressive tactics have not been favorably received. At CNN, a WBD-owned entity, reporters are demoralized. The upcoming months promise more challenging negotiations with MVPDs, which are anticipated to push back due to audience declines at WBD’s cable networks, the potential loss of NBA broadcasting rights, and the shift of some linear programming to the streaming service Max.

Recently, WBD acknowledged a $9.1 billion write-off in the value of its cable channels, a clear admission that the era of double-digit annual growth in affiliate fees and advertising is over.

During a call with investors, WBD CEO David Zaslav attributed these declines to a “generational disruption impacting our industry.” He noted that the market conditions for legacy media companies have significantly changed compared to just two years ago.

With the company’s stock plummeting to historic lows, there is speculation about the potential breakup of Warner’s assets. Wall Street’s confidence in Zaslav’s ability to turn things around is diminishing.

Jessica Reif Ehrlich, an influential analyst at BofA Securities, voiced her concerns in July, suggesting that the current configuration of WBD is ineffective. She believes exploring strategic options would create more shareholder value than maintaining the status quo, emphasizing that “all options need to be on the table.”

Despite the turbulence surrounding iconic brands like HBO, TNT, CNN, and Warner Bros., a change in management seems unlikely. Zaslav is expected to remain at the helm, supported by the company’s overall financial health which is better than it appears. The leadership team is committed to maintaining an investment-grade rating, focusing on managing WBD’s substantial $37 billion debt accumulated from the merger of Discovery Communications and AT&T’s WarnerMedia in April 2022.

However, some cost-cutting measures have caused significant discontent. Projects deemed marginal, such as the completed movie “Batgirl” and CNN+, have been scrapped. The sense among staff is that executives have cut too deep, which is evident from WBD’s third major round of layoffs in three years, affecting about 1,000 employees.

One of Zaslav’s key strategies is to stabilize the company amid streaming disruptions while expanding Max to compete globally with giants like Netflix and Disney+. On a recent Q2 call, he highlighted Max’s launch in new markets across Latin America and Europe.

Zaslav’s hard-nosed negotiation style has alienated crucial contributors to WBD’s cash flow, including advertisers, sports leagues, Hollywood talent, and CNN journalists. The pervasive ill will could harm the long-term health of a company where creativity is the primary asset.

Dissatisfaction is evident among WBD’s talent roster. For example, “Inside the NBA” host Charles Barkley, who recently renewed his contract, expressed his disappointment over WBD’s potential loss of the NBA after a three-decade-long partnership.

According to Scott D. Anthony, a Dartmouth’s Tuck School of Business professor specializing in disruption challenges, companies falter when they focus on manipulating numbers rather than understanding customer and employee behavior. Once this shift occurs, the company’s downfall begins.

Advertisers have long been unhappy with WBD’s sales tactics. During the recent upfront market season, Warner demanded media agencies commit to increased spending compared to 2023 levels. Given the shrinking cable TV market, this demand was seen as unrealistic.

Two media-buying executives familiar with the negotiations described Warner’s approach as particularly unreasonable. Although WBD reported strong upfront commitments in sports and increases in streaming, it did not disclose the overall dollar figure tied to its portfolio.

One buyer noted that while occasional tough negotiations over small amounts are expected, Warner’s persistent hard-line tactics every year are problematic. This buyer believes Zaslav doesn’t grasp the nuances of this kind of negotiation, echoing the sentiment that advertisers dislike being told their substantial spending is insufficient.

Another executive remarked that dealing with Warner Bros. is difficult on multiple levels, expressing frustration with the company’s approach.