As Warner Bros. Discovery’s stock is down 73% in the past five years and currently hovering around $7 per share, the media giant is in close contact with its board of directors when it comes to evaluating strategic options.
“We have to accept the reality of the industry that we’re operating in. That said, we have been working really hard and we’ve just had another strategic discussion with the board,” chief financial officer Gunnar Wiedenfels told an investor conference hosted by Bank of America on Wednesday. “There’s a linear business that is going to continue to decline, but I have full confidence that our studio business and the DTC business are going to be able to more than offset that over time, and we’re on a path and we have a plan to deliver consolidated, profitable and sustainable growth for the combined company.”
Wiedenfels emphasized that WBD has looked at “various permutations” and has a fiduciary duty to evaluate all opportunities.
“We’re going to be rational in our decision making,” he added. “But that said, I think we are at the point where a lot of the investments we’ve made with a lot of hard work across every segment of this company over the past two years have put us in a position to now get some of the fruits of that labor. We’re starting to see it in DTC, on the studio side, there’s the games overlay. But I’m confident that we’re going to see the very significant performance improvement in pretty short order as well after working on it now for two and a half years.”
Bank of America analyst Jessica Reif Ehrlich, who led the Q&A with Wiedenfels, has previously proposed options such as sales of assets like CNN or the Warner Bros. Games division, or a potential split of the company’s linear networks and debt from its DTC and studios businesses. The company reportedly is looking at the former option and views the latter as a “nuclear option,” citing legal and operational risks.
Wiedenfels declined to elaborate on the specific actions WBD is taking outside of its focus on streaming profitability and the DTC business’ international expansion, managing the declining linear business and turning around the studios business post-Hollywood strikes, but argued that he sees “tremendous upside value” in the company that isn’t reflected in its current share price or short-term financial performance.
“We don’t have a lot of patience and we’re working hard on delivering that value,” he noted. “We’re at the point where we’re going to see this operational performance inflection.”
In addition to the discussion around strategic options, Wiedenfels was asked about how the potential loss of the NBA is affecting WBD’s affiliate renewal negotiations. While acknowledging that advertising revenue and affiliate fees take the biggest impact whenever sports rights shift, he declined to comment on specific scenarios around the NBA, citing the pending litigation with the league over enforcing its matching rights. The CFO also emphasized that talks with affiliates thus far have been “constructive.”
“One of the consequences of merging twice over a period of five years is we are constantly in renewal discussions with some of our affiliates. These deals are never easy. They have never been easy because there is no such thing as a market price and there’s a lot at stake. But those discussions are as constructive today as they were years ago,” Wiedenfels said. “We’re getting a lot of interest by any analysis that I’ve done outside in. Our partners are generating a lot of value for their own companies and their consumers with our product, we have a very compelling portfolio that we offer them and I think that’s what counts in the end. I don’t see a dramatic change in that either here in the U.S. nor international.”
Though the decline in linear has been a “frustrating” area, Wiedenfels said the company will continue managing its cost base and streamlining its global broadcast operation. He also said the company would continue to seek greater leverage from its existing libraries and would program its linear networks with an eye towards “utilization across the entire Warner Bros. Discovery footprint.”
Ultimately, Wiedenfels sees the industry headed towards a similar framework proposed under Disney’s carriage deal with Charter Communications struck last year that combines linear networks and DTC services in one package, calling it a “logical” outcome and a “win win.”
“We want to win together. We know that viewership and interest in linear distribution is coming down. We know that interest in our content is not coming down, it’s coming up. What are the ways to find a mutually beneficial partnership here?” Wiedenfels added. “We want to maintain that linear ecosystem for as long as we can and get as much value out of it. We want our streaming products to be penetrated as broadly as possible, and for our affiliate and distribution partners, they want to be able to offer to their consumers these great products, and the great content in whatever form they want to consume it in.”
He also argued that there’s “too much fragmentation” and that consolidation amongst the major streamers is likely.
“There’s no doubt we’re coming off of this period where everybody was launching their streaming services. You couldn’t spend money fast enough and that’s clearly behind us. And while a lot has been rationalized, there’s no doubt that more needs to happen,” he said. “All of these peers are going to ask themselves what the path forward is, and if you just look at it strictly from a consumer perspective, it’s not a great landscape right now.”
WBD has been a big proponent of bundling and most recently launched an offering that includes Max with Disney+ and Hulu.
“Those are phenomenal value propositions, I think, both for consumers and for us, because we’re going to get a greater output out of that bundle product than what we have on average on a standalone basis. We’re keeping it all to ourselves, no toll to anyone. We’re able to offer it at a very attractive price point to consumers. It’s a complimentary content offering,” he said. “So it’s a great structure, and that’s one example of a more aggregated product and I think over time, that’s where it’s going to go back to.”
Leave a Reply