Warner Bros Discovery May Not Keep AEW TV Shows After Recent Financial Woes

It should come as no surprise to people that Warner Bros Discovery is having a tough time financially right now. They have been bleeding money ever since Discovery Communications purchased Warner Bros. from AT&T. At the time, it was thought to be an insane deal as Discovery had never handled many of the things it would be taking on upon purchasing the property. From regular news to even feature films, Discovery was not prepared. Least of all, it was not prepared for the massive costs to run this operation.

As a result, they have since canceled several projects. Despite some films even being completely filmed, they refused to release them. This means that they ate the costs of the movies when they could have made at least some profit after releasing them. Now, they are preparing for another major move that could cause many issues.

Variety reports that roughly 1,000 layoffs are coming across a few big company sectors. The goal is to cut costs and try to right the ship, which still looks to be sinking. Interestingly, they are cutting people from finance, business affairs, production, and even those from the MAX streaming side of the company. Of course, most of the people that were fired were from the finance division whereas roughly ten people were cut from the MAX side.

What does any of this have to do with AEW and professional wrestling? Let’s dive into that.

AEW MAY NEED TO TALK TO OTHER COMPANIES

While The Wrestling Observer is abnormally kind when discussing AEW, even they could see the writing on the wall here. Tony Khan has been negotiating a new television rights deal with Warner Bros Discovery for several months. A little while back, the idea was that a deal would be done sometime this Summer, as they had plenty of time before anyone needed to worry. However, the TV deal is up at the end of this Summer, roughly a month away, and no deal has been agreed upon.

WON’s Dave Meltzer reports, “AEW would probably do well to start talking to other people, because we’re at that point now.”

He said this in part because of the recent layoffs, but it also has to do with other moves being made by the company. Some of these moves seem understandable, like the layoffs. Others, however, seem only to be headed for disaster from the start. Warner Bros Discovery CEO David Zaslav has cooked up the idea of splitting up the company.

This is being reported as a “breakup,” but there is a lot more to it than you might expect.

LET’S BREAK UP:

According to The Financial Times, Zaslav considered selling assets, which would technically devalue the company long-term. However, he is most interested in spinning off the Warner Bros. movie studio and MAX streaming service into a separate company. That would, in essence, unburden that specific company. Ideally, it wouldn’t be connected to Warner Bros Discovery’s current $39 billion debt.

Over the past year, WBD’s market capitalization has fallen by a third to roughly $20 billion. Spinning off two of the company’s most ideally profitable sides would be useful. However, they have yet to hire an investment bank to initiate a transaction like this. They have actually left it up to management to talk with advisors about finding a solution that would be in the best interest of the shareholders.

John Malone (cable billionaire) and the Newhouse family (who own Condé Nast) are the company’s biggest backers.

At one point, WBD even approached advisors to rival media groups to see if they might be interested in M&A options. The idea would have been that they could utilize some of WBD’s existing assets. This seems relatively appealing, as WBD owns many very useful media properties.

Another consideration was to merge with Comcast’s NBC Universal Group and Paramount. However, Skydance Media swooped in and is in the process of merging with Paramount Global. Meanwhile, the NBCU deal seemed to have died. Both have legacy TV assets and top streaming platforms, so this made sense but did not work out.

HOW THE BREAK-UP AFFECTS AEW

This break up really does hurt AEW when it comes to a new TV deal. Warner Bros Discovery is uninterested in paying AEW what they are worth. This is entirely due to an effort to save as much money as possible. While negotiations make sense, WBD is not interested in negotiating a much bigger deal for AEW than what it already has. On top of that, they had been wanting to get AEW PPVs onto the MAX streaming platform.

Therefore, they seem to want to take much more from AEW without a reasonable monetary amount. AEW has more than earned a larger television deal. Of course, no one is asking for them to see WWE TV rights numbers. However, something over $100 million annually is relatively fair. This is also heavily needed as AEW has to hit that number or higher to turn a profit in the next year.

Owner Tony Khan will only be able to bleed money for so long before he cannot do it anymore. Sometimes, you have to know when to cut your losses. He’d have to do so if the TV deal isn’t working. Of course, WBD also puts a lot of this deal up in the air.

If they spin off a new company, Warner Bros Discovery cannot connect the AEW TV deal with the MAX streaming platform for PPVs. This would throw a monkey wrench into negotiations, as they could no longer use the MAX service to potentially increase the overall TV deal.

THE BEST OPTION:

AEW most certainly needs to speak with other networks, but who they’ll speak with is unknown. Clearly, they know they might not get an impressive deal from that network due to not having a long-standing connection with them. Yet they could get something near what they desire anyway.

Bank of America analysts warned that Warner Bros Discovery’s potential split could have a “potentially devastating” impact on bondholders. In fact, this situation is similar to what Lionsgate faced. A creditor revolt took place after it separated its Starz pay-TV network, which people hated. WBD also might have an issue attempting this as the debt was raised in a “lenient environment.” This came attached with covenants preventing a ton of financial engineering.

This strategic spin-off would create a highlight package of WBD’s most useful assets. Their legacy television assets experienced a decline in revenue despite still generating most of the company’s cash flow. Yet this means technically, the spin-off could try to divorce the other aspects of the company.

Basically, most of the heavy debt would be housed in the TV group.

That would open the door for a faster-growing streaming and studio business with fewer borrowings and more flexibility to invest in growth. This might seem ideal since shares have fallen 70% since AT&T spun off Warner Bros., which merged with Discovery roughly two years ago. They were hit with a terrible advertising market and high streaming costs due to the COVID-19 pandemic, and eventually, Hollywood strikes. Yet this leads to terrible issues all around, too.