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Bank of America wrote a report recently that says the only way out of business hell for Warner Brothers Discovery (HBO/MAX, Movies, etc.) is to sell off assets or merge with another company.

It’s possibly the smartest thing to do, and also the most obvious.

So let’s talk through it…

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State of WBD: A Shi*show in debt

So you’re in debt…how much exactly?

WBD is in a lot of debt. 42 Billion dollars worth. Twice its market cap to be more specific.

When you’re in this much debt and you have a directive to create value for shareholders, there’s little you can do besides sell off assets or be acquired by another company (Read: a tech giant) and have your debt assumed by the new company that emerges while you cash out your shareholders with the sale.

But with an FTC that’s basically allergic to approving M&A, you have to be creative about maneuvering.

What you can do: You can partner with another content giant for partnerships/licensing deals on top of the licensing deals you’re doing with other media giants. In this case, Youtube probably. CEO David Zaslav is kinda tight with Neal Mohan (YT CEO).

Wait, what else can you do?

You can break off your businesses. You can take the most profitable business and spin it off or put it up for sale so another business buys it.

With the company split or broken off, it can be free of the debt, making it even more attractive to an investor/buyer.

Here’s deadline’s reporting on July 17th:

Put it into perspective for me…Why should I care?

We hate saying this, but you shouldn’t. Well, you should because WBD has HBO and they’re going to continue to ruin that entire brand (we’ll be stuck with weird Apple TV series masquerading as good shows).

But this is a hot story in media, and because it’s an easy narrative to follow and there’s just a little bit of drama.

This is actually distracting from the real picture, which is this:

WBD is a fraction of Netflix Amazon and Apple. 2 out of 3 of these companies treat media/content like features on their balance sheet, yet they occupy a higher content budget than any legacy media company.

BONUS SECTION: AN NBA DEBACLE

Okay, so Amazon and NBC got new NBA media rights and TNT (a subsidiary of WBD) was left out in the cold. But that’s not exactly true. They didn’t come to an agreement on the new deal in their exclusive negotiation window, and NBC/Amazon pounced and paid the NBA its richest media deal in history.

Now WBD is mad. The NBA refused WBD’s deal when they exercised their contractual right to match any deals offered by other companies.

David Zaslav issued a statement hinting that they would take this to court.

Which makes no sense.

Only…it makes perfect sense…let’s think about it:

If I’m a CEO with great assets but a ton of debt on my balance sheet…

…and a report has come out saying I need to spin off assets/merge with another company in order to stay afloat…

…and then I also have to deal with a hostile FTC that might block a merger/acquisition of my assets…

…then wouldn’t I need to yell and scream about how my business is in danger and I need saving in order to avoid the story of becoming part of another tech monopoly-extension incident?…

If this is David Zaslav’s strategy…it’s brilliant. If it’s not…then yikes. Because he’s being a sore loser about being a loser in the market place.

None of this is investment advice, btw.

Have a great week!

Ahmed and Peter