Warner Bros. Discovery and its besieged CEO David Zaslav finally have reason to celebrate in 2024.
Formed from the 2022 merger of WarnerMedia and Discovery, the company has seen its stock price plunge 70% since the deal closed, with a series of miscues culminating in the loss of NBA rights — pending a legal complaint — starting with the 2025-26 season.
In August, S&P lowered its outlook on WBD to “negative” from “stable,” citing declines in the media company’s cable TV business that could worsen with the potential loss of NBA rights.
The streak was reversed in dramatic fashion Thursday, however, as the company announced an early carriage renewal with Charter Communications, the largest pay-TV operator in the U.S. The deal, which resolves one of several pending renewals for WBD, will see its streaming flagship Max integrated into most of Charter‘s Spectrum cable and broadband systems. Unlike a similar deal between Charter and Disney a year ago, no WBD networks were left without carriage.
The stock surged 10% on the news Thursday — the best performer in the S&P 500, and is up another 10% on Friday on the deal, which offers debt-laden Warner a stable flow of much-needed cash and sets a baseline for other distributor pacts as they come up.
“Warner Bros. Discovery has been under pressure for a handful of reasons over the past year, but one of the bigger overhangs has been what will happen during its next set of upcoming renewals,” said Robert Fishman of MoffettNathanson in a note. “Deals are often called win-win. They rarely are. This one might be.”
Few details emerged about the terms of the deal, but Zaslav said at a media conference Thursday that affiliate fees for flagship TNT held steady despite the uncertainty about the NBA’s future on the network. The combined payout for all channels rose versus the current deal, he said. “We held price on TNT and in the aggregate, for our cable business, we got paid more money for our 30 channels,” he said. “And all of our channels are carried. There were no channels that were dropped.”
Charter and Spectrum have 13.3 million pay TV subscribers and 30.4 million broadband subs.
David Joyce of Seaport Global called the renewal “surprising” and the stock revived “because the affiliate fees are being maintained, particularly for TNT which carries the NBA games for one more season, reflecting the distributor’s confidence in the value proposition that it expects to be maintained going forward. The importance of this early Charter renewal is to show that WBD will be at least maintaining price, although cord cutting may continue to pressure subscriber totals.”
Darius Morris of the Los Angeles Lakers blocks shot by Monta Ellis of Milwaukee Bucks in 2024 NBA game
Harry How/Getty Images
As WBD’s fortunes flagged in recent months, with the home of Warner Bros., HBO and CNN seeing its market value drift down to almost $16 billion (one-tenth of Disney’s), some on Wall Street begged the company to split up or sell itself. The loss of the NBA in part prompted a massive $9 billion write-down of linear television assets. Speculation swirled that an activist investor, a la Nelson Peltz, would pounce. And where on Earth, Wall Streeters wondered, was the wily billionaire John Malone, Zaslav’s longtime mentor and protector on the board, as his personal stake in the company shrank in value?
Well, “Malone is on both sides of the equation” here, noted Rich Greenfield of Lightshed Partners. The cable pioneer is a big investor both Charter and WBD.
Zaslav’s compensation packages, occasional tone-deafness and penchant for axing creative projects haven’t endeared him to Hollywood rank and file. A photo of the CEO in a backward baseball cap sitting with Elon Musk at the U.S. Open recently drew scoffs when it circulated on X. “That’s all you need to know,” one high-powered friend of Zaslav’s sighed in a recent chat with Deadline. “I have tried to tell him.”
Pols have piped up as well. “The merger of Warner Bros. and Discovery has given a black eye to the idea of mergers in the entertainment sector I think for years to come,” Rep. Joaquin Castro opines to Deadline. Back in April, the Texas Democrat along with Sen. Elizabeth Warren (D-CA), Rep. David Cicilline (D-RI) and Rep. Pramila Jayapal (D-WA) sent a letter asking AG Merrick Garland and DOJ antitrust chief Jonathan Kanter to investigate a merger for “potentially anticompetitive practices that reduce consumer choice and harm workers in affected labor markets.” There doesn’t seem to have been any action on that.
“Most of the financial indicators coming out of Warner Bros. Discovery have been negative,” Castro tells Deadline. “The stock price … they have laid off thousands of employees. They’ve dumped content for tax purposes. They have shuttered different platforms. … The only thing that has flourished is the CEO’s pay.”
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Zaslav’s package for 2023 was valued at $49.7 million, up 26% from 2022. In 2021, it was worth $247 million, swelled by stock options. A chunk of his pay each year is in stock options that vest at various strike prices, many of which remain under water. The company recently changed its formula to link more of his pay to cash flow given the pressing need to pay down debt.
Investors stomach the pay better than, say, unions, and have known and generally liked Zaslav since his early Discovery days through its merger with Scripps and ambitious acquisition of Warner Media, a smaller company buying a bigger one and piling on debt in the process. Other big media companies have shed staff and written down content, they note, and in the current climate, Discovery and Warner Media are stronger together than as stand-alones. The conglom has been paring down its debt, expanding Max internationally and retooling its studio with bright spots like Beetlejuice Beetlejuice and upcoming Joker: Folie à Deux and The Penguin series on HBO.
Michael Keaton in ‘Beetlejuice Beetlejuice’ (Warner Bros./Everett Collection
Yes, Wall Street has been less than thrilled with Zaslav and WBD of late. But polled after the last, soft set of quarterly earnings, many said what matters most is the next crop of pay-TV renewals that will determine whether Turner can still flourish without the NBA. Would affiliate fees drop dramatically at TNT and Turner more broadly? Could there even be a loss of carriage?
So far so good.
Zaslav getting the Charter deal done, “especially a deal that was not up for an entire year,” was a big surprise, said one Wall Streeter.
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Turner/TNT has had rights to broadcast NBA games since 1989 and started streaming them on Max last year. But as the latest renewal approached, WBD let an exclusive negotiating window lapse without a deal and the NBA subsequently awarded a trio of packages to incumbent Disney/ESPN, NBCUniversal and Amazon Prime Video.
Warners contractually was entitled to matching rights and lobbed in an offer it said matched Amazon’s package, the least pricey of the three at about $1.8 billion a year. The NBA under Commissioner Adam Silver rejected it, saying it hadn’t. He said Amazon is putting billions of dollars for payments in escrow vs WBD’s offer of a line of credit from banks — “not even close to the same thing,” the league said in a counter.
Warner sued the NBA. No one really sees a victory. Zaslav said today WBD still hopes to have the NBA “for the next 11 years … depending on how that turns out.
In another when-it-rains-it-pours development, WBD is a partner with Disney and Fox in joint streaming venture Venu Sports, whose launch was blocked by a federal judge last month after $74 million in start-up costs
Charter, led by CEO Chris Winfrey, has been assembling a streaming package for subscribers as it renews carriage deals (adding Disney+, Paramount+ and, most recently, AMC+). WBD will contribute Max with ads, and Discovery+ expands the Max footprint.
The duration of the contract wasn’t revealed, but as the industry has shifted these agreements have tended to narrow from a five-year norm to two or three years. Here, only the first is guaranteed to have the NBA.
The Charter agreement takes that uncertainty into account. It also sets a baseline for a spate of other renewals starting with Comcast at the end of this year and more coming in 2025.
“The terms were better than investors were expecting,” said Greenfield.
Another question lingering after the Thursday renewal is whether it provided a template for WBD’s upcoming negotiations. Wall Street thinks it does. But, as per the current battle between DirecTV and Disney, nothing is sure. “These deals are never easy,” WBD chief financial officer Gunnar Wiedenfels noted at a media conference last week. “They have never been easy, because there is no such thing as a market price, and there’s a lot at stake.”
Anthony D’Alessandro contributed to this report.
