Warner Bros Discovery, 34 billion in junk debt holds up the spin-off

The television shot did not miss him. Watching the Roland Garros semi-final between Jannik Sinner and Nole Djokovic yesterday in Paris was also him: David Zaslav, the CEO of Warner Bros Discovery, the group that controls Eurosport and, in turn, the rights to the French competition. Who knows if and to what extent, sitting next to Dustin Hoffmann, he managed to keep away from himself the headaches that, according to the rumours bouncing from overseas, come from the situation of the media giant. Which is grappling with a mountain of debts, a loss of value and a plan to split its linear and traditional TV and streaming activities that appears to be blocked, at the moment, precisely by the debt situation.

According to Reuters, the board meeting that was supposed to seal the split was scheduled for these days. But instead of the go-ahead, everything turned out to be a no-go. Dangerous, especially for the CEO. In the last few days he has been able to gauge the discontent of his shareholders, which manifested itself in the rejection (see Il Sole 24 Ore of 5 June) by 59% of the shareholders who were against the 2024 remuneration package for the CEO and his team, including the $51.9 million earmarked for him for 2024.

What is certain is that the company that in 2022 was born from the union between WarnerMedia (former AT&T asset) and Discovery to configure itself as the new global streaming battleship - moreover, as a perfect narrative machine between information (CNN), mass reality (Discovery), quality fiction (HBO) and Oscar-winning cinema (Warner Bros.) - is going through perhaps its most difficult phase, at least in its relationship with investors. The house of Bugs Bunny, Batman and CNN, whose films such as Barbie have been box-office hits, is today faced with a net debt of 34 billion dollars, the result of various acquisitions over time (not forgetting that of Scripps); a market capitalisation that in the space of three years has gone from 70 billion dollars to around 25 and a debt that has now been downgraded to junk status by S&P.

The problem - which is not only Warner Bros Discovery's, it must be said - is structural. Indeed, the media giant continues to have a large part of its business in areas that are no longer growing: cable channels, once gold mines, now seem to be running out of steam. The phenomenon of cord-cutting - the abandonment of cable by users for cheaper content offerings typical of streaming giants, from Netflix on down - has eroded the company's audience, advertising revenue and bargaining power.

So here is the move that Zaslav opened up to last December (actually talking then about operational divisions). The plan on the table would be to separate the business into two separate entities: a 'Global Linear Networks', with all traditional TV in it; and a 'Studios & Streaming', which would encompass Warner Bros., Hbo, the Max platform, and everything else that analysts still dream of.