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Disney Bob Iger sequel slated for HBO owner



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The author is a Reuters Breakingviews columnist. The opinions expressed are her own. Refiles to fix typo in final paragraph.

By Jennifer Saba

NEW YORK, June 10 (Reuters Breakingviews) -Walt Disney’s DIS.N activist drama is headed to Warner Bros Discovery WBD.O for a sequel. Earlier this year Disney’s boss Bob Iger managed to beat back a swarm of pushy investors who were dismayed by dismal box office results and an unprofitable streaming business. WBD, led by Chief Executive David Zaslav, has similar issues, only it’s much smaller and Zaslav is less-loved. That makes him more vulnerable to activists – and his company a target for a break-up.

WBD, which was borne from a merger of Discovery and Warner Media in 2022, is beset with similar problems as Disney in each of its divisions, which include cable television, the movie studio, and streaming asset Max. TV, which has TNT and other channels, posted a revenue decline of 8% year-over-year in the first quarter. WBD looks set to lose the broadcast rights to the National Basketball Association after having aired the games for 40 years. While the cost to show the Dallas Mavericks and Boston Celtics has ballooned 250% since the last time the contract was up for grabs a decade ago, the price is emblematic of the importance live sports has to cable. Without it, WBD risks further deterioration to its clutch of cable networks.

There are other challenges in the land of Looney Tunes. The film “Furiosa” had the worst box office performance for a movie debuting Memorial Day weekend since 1995. The studio had to take a $200 million loss in the first quarter because the video game “Suicide Squad” bombed.

The problems are reflected in WBD’s stock price which is hovering near its low since the companies merged.

While Zaslav has spent the past year grappling with cutting debt, a breakup would provide more value. Consider Warner Bros studio, which is expected to generate $2.4 billion in EBITDA next year, according to LSEG. Rival Paramount Pictures recently received a bid from Apollo Global Management APO.N for $11 billion, which Morgan Stanley reckons represents up to 20 times EBITDA. On that metric, the “Barbie” producer would be worth nearly $50 billion.

The cable networks, which also include news outlet CNN, is on track to make almost $8 billion in EBITDA next year. On a multiple slightly lower than Fox FOXA.O, about 4 times, WBD’s unit is worth $31 billion. Then there is the streaming division, which is expected to make $1 billion in profit in 2025. At about 15 times profit, a one-third discount to Netflix NFLX.O, Max is worth almost $15 billion. Tot it up, subtract roughly $40 billion in net debt, and WBD’s stock would be worth more than 2.5 times the current value.

There’s a hiccup, of course. The company rejigged Zaslav’s pay package this year, and he’s awarded goodies based on cash flow. That gives him motivation to continue to slice costs, as he’s been doing, and keep the pot of cash as big as possible. Over the past year, that plan hasn’t worked for shareholders, and nearly half of the investors that voted at the recent annual meeting were dismayed with the way Zaslav has been paid, according to a filing. Perhaps it’s time for some of them to stand up.


Follow @jennifersaba on X

CONTEXT NEWS

Warner Bros Discovery held its annual meeting on June 3. Chief Executive David Zaslav’s total compensation package for 2023 was $49.7 million, up 27% from the prior year. Just under 50% of shareholders who voted at the meeting cast ballots against his pay package, according to a regulatory filing on June 7.

The National Basketball Association is close to making agreements with Amazon.com, Comcast’s NBC and Walt Disney for $76 billion for TV rights for 10 years, according to the Wall Street Journal on June 5. Warner Bros Discovery’s cable network TNT held the rights for 40 years.

WBD’s stock is down two thirds since it closed its merger with Warner Media in April 2022.


WBD share price slump https://reut.rs/45zm5fr

WBD's cable networks reap the most EBITDA https://reut.rs/3yRXkyG


Editing by Lauren Silva Laughlin and Pranav Kiran

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