Warner Bros. Discovery CEO Finding A Lot Of Skeletons In The Financial Closet

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Warner Bros. Discovery just announced a much larger than previously reported write-down on its library content, putting some investors on edge. In an SEC filing, the company goosed its estimated impairment on content charge from $2.0-$2.5 billion to $2.8-$3.5 billion. Total pretax restructuring charges are projected to be $4.1-$5.3 billion through 2024 versus the $3.2-$4.3 billion number it put out in October.

Unfortunately, the company also noted in the filing that the restructuring is ongoing and “could result in additional impairments above the revised estimates.”

“It’s messier than we thought, it’s much worse than we thought,” said CEO David Zaslav. “You opened up the closet, things fell out. We are finding them. Some assets are better than we thought at the core—the talent is better than we thought. But there was a lot that was unexpectedly worse than we thought,” he said.

The company is clearly retrenching. It cancelled J.J. Abrams’ HBO drama series “Demimonde” which was said to have a budget of more than $200 million, as well as the previous announcement that it was going to abandon ship on “Batgirl” and “Scoob: Holiday Haunt” and management has recently added to the cancellation slate “The Big D,” “Chad,” “Kill The Orange Bear” and other shows at the Turner Networks.

HBO Max is also suffering and getting a major rewrite, with programs such as “Minx,” “The Nevers,” “Raised By Wolves,” (the Head of the Class” reboot), “The Time Traveler’s Wife,” “Westworld,” and reality shows like “FBOY Island,” “Legendary” and “Finding Magic Mike” are also disappearing.

More shows are expected to be shoveled off of HBO Max and onto FAST (Free Ad Supported TV) platforms, although that may change in 2023 when it is expected Warner Bros. Discovery will launch or announce plans for the launch of their own FAST TV platform.

Shows like “Gordita Chronicles”, “Love Life”, “Made For Love”, “The Garcias” are also being dropped and the rights are reverting back to the studios and production companies behind them, but could eventually end up in the package of FAST TV programs being sold, depending on negotiations.

“We’ve been removed from HBO Max but we’re still finishng the season. So thankfully they didn’t halt production. We’re about a week away from being finished shooting,” Jake Johnson, the producer of “Minx” told a reporter. “From what I am hearing, S1 & S2 (and hopefully S3) will find a new home, the question is where,” he said.

These will now go on the market primarily to “FAST” (Free Ad Supported TV) services like Amazon Freevee, Roku, Samsung, Tubi Viacom’s Pluto TV, Walmart’s WMT Vudu and Xumo as well as some subscription services like NBCUniversal’s Peacock.

Management presumably is estimating they can get more cash for selling them to competitors than the shows will generate in revenue from HBO Max. No external stats are revealed but executives at HBO Max obviously have detailed statistics on how many people are watching these shows, and they aren’t good.

“Warner Bros. Discovery continues to strategically assess how best to maximize audience and monetization opportunities. The company has recently decided to license certain HBO and HBO Max original programming to third party FAST services…” the company said in a statement.

The change in strategy is an about face following the merger of Warner Bros. and Discovery, from the prior strategy to throw everything possible at the service to a more focused monetization strategy. On the plus side, last month the company raised its cost-synergy target from $3 billion to $3.5 billion.