Warner Bros. CEO Under Pressure to Please Shareholders

Discovery Inc. experienced a significant drop in its stock value on Thursday following a staggering $9.1 billion impairment charge, attributed to the decline of its linear television business and uncertainties surrounding NBA broadcasting rights. The company, which has struggled to enhance its market value, may attract activist investors, although potential strategies for these investors could be limited. CEO David Zaslav's performance incentives are closely tied to improving free cash flow and reducing the company's substantial debt, which currently stands at $37.8 billion against a market capitalization of approximately $17 billion. The impairment charge reflects the ongoing challenges in the U.S. linear advertising market and the uncertainty regarding affiliate and sports rights renewals, particularly concerning the NBA. Discovery's linear cable networks, which still contribute over 100% of the company's adjusted EBITDA, have seen a significant loss in value. Analysts, including Robert Fishman from MoffettNathanson, suggest that the write-down indicates the company may have overpaid for its linear assets during the WarnerMedia merger, raising concerns about future cash flows, especially if NBA rights are lost. During a recent earnings call, Zaslav hinted at exploring partnerships and mergers, while CFO Gunnar Wiedenfels dismissed the idea of breaking up the company, emphasizing the advantages of maintaining "one Warner Bros. Discovery." As the company navigates these financial challenges, the potential for an activist investor's proposal to sell the company remains uncertain.