David Zaslav's top priority at Warner Bros. Discovery: Get the cash flowing again

A fewer months ago, aft a lengthy and sobering reappraisal of Warner Bros. Discovery's business, Chief Executive David Zaslav gave his part heads a cutthroat mission.

Pretend your units are household businesses, Zaslav said. Start from scratch and prioritize escaped currency flow, helium added, according to radical acquainted with the matter. Then, Zaslav said, travel backmost to maine with a caller strategical program for your unit.

Zaslav's directive has led to what volition magnitude to thousands of layoffs astatine the institution by the mediate of this month, said the people, on with important strategical changes astatine CNN, the Warner Bros. movie workplace and different divisions.

The CEO formed his program aft helium took a hard look astatine the finances of the combined WarnerMedia-Discovery, a woody that closed successful April. Zaslav determined the institution was a mess. AT&T mismanaged WarnerMedia done neglect and profligate spending, he'd decided, according to radical acquainted with his discussions. The radical asked not to beryllium identified due to the fact that the talks were private.

Warner Bros. Discovery's full indebtedness of astir $50 cardinal was tens of billions much than the company's marketplace capitalization. About $5 cardinal of that indebtedness is owed by the extremity of 2024 aft paying disconnected $6 cardinal since the adjacent of the merger. The institution could propulsion backmost the maturity connected immoderate bonds if necessary, but interest rates person risen dramatically, making refinancing overmuch costlier.

To wage down debt, immoderate institution needs currency — ideally, from operations. But the near-term trends suggested Warner Bros. Discovery's concern was getting worse, not better. The company announced escaped currency travel for the 3rd 4th was antagonistic $192 million, compared to $705 cardinal a twelvemonth earlier. Cash from operating activities was $1.5 cardinal for the archetypal 9 months of 2022, down from $1.9 cardinal a twelvemonth earlier.

Along with the emergence successful rates, Netflix's global gross and subscriber maturation had slowed, prompting investors to bail connected adjacent stocks — including Warner Bros. Discovery, which had spent the past 3 years processing streaming services HBO Max and Discovery+. Moreover, the advertizing marketplace was collapsing arsenic firm valuations flagged. Zaslav said past month the advertisement marketplace has been weaker than astatine immoderate constituent during the 2020 pandemic.

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Warner Bros. Discovery shares person fallen much than 50% since WarnerMedia and Discovery closed the woody successful April. Its marketplace worth stands astatine astir $26 billion.

In summation to occupation cuts, Zaslav's directive spurred the elimination of contented crossed the company, including scrapping CNN archetypal documentaries, Warner Bros. sidesplitting disconnected "Batgirl" and "Scoob 2: Holiday Haunt," and HBO Max eliminating dozens of little-watched TV series and movies, including astir 200 aged episodes of "Sesame Street."

The contiguous decisions allowed Zaslav to instrumentality vantage of tax efficiencies that travel with changes successful strategy aft a merger. Warner Bros. Discovery expects to instrumentality up to $2.5 billion successful contented impairment and improvement write-offs by 2024. The company, which has astir 40,000 employees, has booked $2 cardinal successful synergies for 2023. Overall, Zaslav has promised $3.5 cardinal successful outgo cuts to investors — up from an archetypal committedness of $3 billion.

The underlying rationale down Zaslav's cost-cutting strategy centered connected turning Warner Bros. Discovery into a currency travel generator. Not lone would currency beryllium needed to wage disconnected debt, but Zaslav's transportation to investors would beryllium to presumption his institution arsenic a shining airy successful the changing amusement satellite — a bequest media institution that really makes existent money.

"You should beryllium measuring america successful escaped currency travel and EBITDA [earnings earlier interest, taxes, depreciation and amortization]," Zaslav said an capitalist league tally by RBC Capital Markets past month. "We're driving for escaped currency flow."

Zaslav is trying to springiness Warner Bros. Discovery a caput commencement connected what whitethorn beryllium a twelvemonth of downsizing among ample media and amusement companies. His strategy appears clear: Cash procreation volition coax Wall Street into seeing his institution arsenic an manufacture outperformer. But he'll request to support unneurotic a institution made up of tens of thousands of ex-Time Warner and past ex-WarnerMedia employees who person been done circular aft circular of reorganizations and layoffs.

"It isn't going to beryllium overnight, and there's going to beryllium a batch of grumbling due to the fact that you don't make $3.5 cardinal of operating synergies without, you know, breaking a fewer eggs today," Warner Bros. Discovery committee subordinate and media mogul John Malone told CNBC successful an interrogation past month.

Malone has co-strategized and cheered Zaslav's effort to absorption the institution connected maximizing escaped currency flow, which is defined arsenic nett income positive depreciation and amortization minus superior expenditures.

"Whenever I speech to David, the archetypal happening I accidental is negociate your cash," Malone said past month. "Cash procreation volition yet beryllium the metric that David's occurrence oregon nonaccomplishment volition beryllium judged on."

Even earlier Zaslav gave his directive to each of the part heads, the caller CEO was already reasoning astir however to boost currency flow. That was astatine slightest portion of the information to destruct CNN+ just weeks aft it launched, which had a spending fund of astir $165 cardinal successful 2022 and an eventual $350 million, according to radical acquainted with the matter.

Warner Bros. Discovery owns streaming services, linear cablegram networks, a movie studio, a TV accumulation workplace and integer properties. It owns DC Comics, HBO, CNN, Bleacher Report, and oodles of world TV programming. It has sports rights some internationally and domestically, including the NBA connected TNT.

Zaslav hopes his reconstruction of Warner Bros. Discovery volition present 2 results. First, it volition showcase the institution arsenic a afloat diversified contented machine, featuring apical brands and intelligence spot successful prestige TV (HBO), movies (Warner Bros.), world TV (Discovery), kids and superheroes (Looney Tunes, DC), quality (CNN) and sports (NBA, NCAA March Madness).

Second, helium wants it to beryllium that a modern media institution that's spending billions connected streaming video tin besides make billions successful currency flow. The institution has estimated 2023 EBITDA volition beryllium $12 billion. Warner Bros. Discovery volition make much than $3 cardinal successful escaped currency travel this year, astir $4 cardinal adjacent twelvemonth and adjacent to $6 cardinal successful escaped currency travel successful 2024, according to institution forecasts.

That would springiness Zaslav a selling constituent to investors compared to different bequest media companies. Disney has generated conscionable $1 cardinal of escaped currency travel implicit the past 12 months and analysts estimation the institution volition person astir $2 cardinal successful 2023. That's contempt increasing Disney+, its flagship streaming service, by 46 cardinal subscribers during the play and owning a taxable parkland concern that generated $28.7 cardinal successful gross for the fiscal twelvemonth — up 73% from a twelvemonth earlier.

The debased escaped currency travel relates mostly to the wealth drain from streaming services and Disney's ample investments successful taxable parks. Over the past 12 months, Disney had $4.2 cardinal successful operating income from its media properties, down 42% from a twelvemonth ago. Returning Disney CEO Bob Iger said successful a municipality hall past period helium volition prioritize profitability implicit streaming maturation — a alteration from erstwhile helium near the station successful 2020. Outgoing brag Bob Chapek enactment into spot a Dec. 8 terms hike for Disney+ and different streaming services to accelerate currency flow.

"Discovery was a escaped currency travel machine," Zaslav said earlier this year of his erstwhile company, which helium ran for much than 15 years earlier merging it with WarnerMedia. "We were generating implicit $3 cardinal successful escaped currency travel for a agelong time. Now, we look astatine Warner generating $40 cardinal of gross and astir nary escaped currency flow, with each of the large IP that they have."

When AT&T announced it was merging WarnerMedia with Discovery Communications past year, Zaslav instantly went connected a Hollywood "listening tour," sensing an accidental to go the caller king of Tinseltown. Many Hollywood powerfulness players thought Zaslav would dedicate his archetypal twelvemonth arsenic CEO to currying favour with the manufacture fixed his deficiency of past with scripted TV oregon movies. He adjacent bought shaper Bob Evans' location for $16 cardinal successful Beverly Hills, a motion immoderate thought meant helium wanted to beryllium Hollywood's adjacent mogul.

A twelvemonth later, Zaslav isn't the king. In fact, galore see him a villain.

It turned retired Zaslav's apical precedence arsenic CEO of a ample nationalist institution wasn't to triumph implicit Hollywood. Rather, it was to person investors his institution could past and flourish arsenic a comparative minnow against overmuch larger sharks, including Apple, Amazon, Disney and Netflix, successful an amusement satellite that's rapidly moving to integer distribution.

Zaslav's absorption connected investors earlier Hollywood makes concern sense. The institution indispensable beryllium financially dependable earlier it tin marque large investments. But he's taken a hit, reputationally, with immoderate successful the originative community.

"HBO Max is wide acknowledged to beryllium the champion streaming service. And present the execs who bought it are connected the verge of dismantling it, simply due to the fact that they consciousness similar it," tweeted Adam Conover, the creator and big of "The G Word" connected Netflix and "Adam Ruins Everything" connected HBO Max, successful August. "Mergers springiness conscionable a fewer affluent radical MASSIVE power implicit what we watch, with disastrous results."

One Hollywood insider who met with Zaslav to springiness him proposal earlier helium stepped into the occupation said the Warner Bros. Discovery CEO has ignored 90% of his proposal connected however to negociate the business.

Time volition archer whether Zaslav's year-one decisions person lasting ramifications with a spurned Hollywood community. Critics of Iger astatine Disney initially said helium lacked "creative vision" erstwhile he archetypal took implicit arsenic main executive astir 2 decades ago.

Zaslav tin antagonistic that Warner Bros. Discovery hasn't decreased contented spending. The institution spent astir $22 cardinal connected programming successful 2022. But he's besides made outgo consciousness a constituent of pride.

"We're going to walk much connected contented — but you're not going to spot america travel successful and go, 'Alright, we're going to walk $5 cardinal more,'" Zaslav said successful February. "We're going to beryllium measured, we're going to beryllium astute and we're going to beryllium careful."

The company's contented decisions person been based connected strategical corrections, specified arsenic eliminating made-for-streaming movies and cutting backmost connected kids and household programming that don't materially entice caller subscribers oregon clasp existing ones, executives determined. Warner Bros. Discovery's HBO continues to churn retired hits, including "White Lotus," "Euphoria," "House of the Dragon" and "Succession," nether the enactment of Casey Bloys.

Perhaps Zaslav's biggest dilemma is what to bash with the NBA.

Like different media companies, Warner Bros. Discovery rents the rights to transportation games and pays billions to leagues for the privilege. Warner Bros. Discovery presently pays astir $1.2 cardinal per twelvemonth to enactment NBA games connected TNT. In 2014, the past clip the league struck a woody with TNT and Disney's ESPN, carriage rights roseate from $930 cardinal to $2.6 cardinal per year.

Negotiations to renew TNT's NBA rights volition statesman successful earnest adjacent year. Zaslav has said helium has small involvement successful paying a immense summation conscionable to transportation games again connected cablegram networks — a level that loses millions of subscribers each year.

"We don't person to person the NBA," Zaslav said Nov. 15 astatine an capitalist conference. "With sport, we're a renter. That's not arsenic bully of a business."

The occupation for Zaslav is keeping bequest wage TV afloat whitethorn beryllium his champion mode to support currency travel coming, and putting NBA games connected TNT whitethorn beryllium his champion accidental to bash that. In the 3rd quarter, Warner Bros. Discovery's cable web business had adjusted EBITDA of $2.6 cardinal connected $5.2 cardinal of revenue. That's compared with a direct-to-consumer concern that mislaid $634 million.

If Warner Bros. Discovery is going to wage billions of dollars a twelvemonth for the NBA, Zaslav wants a woody to beryllium future-focused. He has the luxury of having NBA Commissioner Adam Silver's receptor for the adjacent 3 years due to the fact that the NBA volition beryllium connected TNT done the extremity of the 2024-25 season.

"If we bash a woody connected the NBA, it's going to look a batch different," Zaslav said.

Warner Bros. Discovery knows however to nutrient NBA games and airs a workplace show, "Inside the NBA," which is wide regarded arsenic the champion successful nonrecreational sports. It's imaginable Zaslav could onslaught a woody with different bidder, specified arsenic Amazon oregon Apple, which whitethorn let Warner Bros. Discovery to nutrient their games portion giving him a bundle of games that came with a little terms tag.

Ideally, Zaslav would similar to bash sports deals that see ownership of intelligence property. This is besides appealing to Netflix, The Wall Street Journal reported past month. Acquiring leagues gets Zaslav retired of the rental business. But portion smaller nonrecreational sports leagues, specified arsenic Formula One and UFC, are owned by media companies (Malone's Liberty Media and Ari Emanuel's Endeavor, respectively), it seems improbable NBA owners would hold to merchantability Warner Bros. Discovery a involvement successful the league.

Silver said past period astatine the SBJ Dealmakers Conference helium was unfastened to rights deals structured successful caller ways.

"We're successful the enviable presumption close present of letting the marketplace enactment its magic a small bit, you know, to spot wherever the champion ideas are going to travel from, what's going to thrust the champion value," Silver said.

It's besides imaginable Zaslav could locomotion distant from the NBA completely. While "Inside the NBA" co-host Charles Barkley precocious signed a 10-year declaration to enactment with Warner Bros. Discovery, it includes an retired clause if Zaslav doesn't re-up the NBA, according to The New York Post.

Live sports aren't needfully indispensable to astir streaming services' success. Netflix, Disney+ and HBO Max each person zero unrecorded sports — astatine slightest for now.

The 1 certainty is Zaslav's determination volition beryllium squarely based connected however a woody affects the company's escaped currency flow.

"It's however overmuch bash we marque connected the sport?" Zaslav said. "When I was astatine NBC, erstwhile we mislaid shot [in 1998], we mislaid the promotion of the NFL, which was a immense issue. Then you person the wide plus worth without the sport. So you person to measure each that."

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