RPT-BREAKINGVIEWS-Warner Bros boss makes for an unlikely hero

By Jennifer Saba

NEW YORK, Aug 7 (Reuters Breakingviews) - David Zaslav is rewriting Hollywood’s three-act structure. Screenplays typically divide a story into setup, confrontation and resolution, but Warner Bros Discovery’s WBD.O version features its CEO getting an unlikely third chance to justify his outsized paydays.

After $30 billion WBD undoes its ill-fated 2022 merger, Zaslav will run HBO and the studios, where streaming and the Minecraft movie helped swing the company to a second-quarter profit unveiled on Thursday. Chief Financial Officer Gunnar Wiedenfels has been tapped to lead CNN and other cable TV networks. They’re only worth about 20% of the enterprise’s value, according to Breakingviews estimates, and will be saddled with much of the existing $36 billion in debt.

Although the Warner Bros brand is being retained to honor its storied legacy, it isn’t clear why Zaslav was invited to stick around. From the time it was announced that he would become Discovery’s boss in late 2006 until the broadcaster acquired Warner Media in 2022, the company generated just an 8% annual return for shareholders, lagging the S&P 500 Index .SPX, Walt Disney DIS.N and Netflix NFLX.O. And while Zaslav has presided during widespread industry upheaval, his response to it fell notably short. After the mega-merger, WBD lost investors 18% a year while the broader market tracker yielded 13%.

Some of this underperformance might have been forgivable if Zaslav wasn’t so handsomely rewarded for it. Although he failed to meet some performance targets along the way, he nevertheless received more than $880 million in salary and bonuses from 2008 until 2024, according to an analysis by executive recruitment firm Equilar. A giant 2021 equity package linked to the Discovery-Warner deal made him the highest-paid CEO among S&P 500 peers, per non-profit shareholder advocate As You Sow.

A recent revolt speaks to the frustrations. After losing a nonbinding say-on-pay vote earlier this year, WBD slashed Zaslav’s package by about a third, to $25 million.

Since announcing the corporate split two months ago, WBD’s shares have climbed 35%, a reflection of the potential for yet more deals. The Warner Bros. library may appeal to Netflix or Amazon.com AMZN.O while ailing broadcast TV will be forced into further consolidation.

One long-time investor doesn’t seem optimistic. The Newhouse family, which owns Vogue and Vanity Fair publisher Condé Nast, slashed its stake in the company by more than half last month, citing estate-planning purposes. As any media mogul knows, however, a good third act is usually the hardest to script.

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CONTEXT NEWS

Warner Bros Discovery said on August 7 that it swung to a $1.6 billion net profit in the second quarter from a $10 billion loss a year earlier on a 1% increase in revenue.

The company’s streaming service, HBO Max, generated $300 million of EBITDA during the three-month period, while growing its subscriber base by almost 3% to 126 million from the first quarter.

WBD said on July 28 that when the company separates in mid-2026 its streaming and studios division would be called Warner Bros and be led by CEO David Zaslav. The global networks business, including CNN and TNT Sports, will operate under the Discovery Global brand with CFO Gunnar Wiedenfels running it.

Shares of WBD were down almost 7%, to $11.95, on August 7 at 1100 ET.