Warner Bros. Discovery reported a $148 million loss in the third quarter, hitting a sour note as the company began fielding interest from would-be buyers as Hollywood braces for a transforming deal.
Earnings for the entertainment company that includes HBO, CNN and the Warner Bros. film and TV studios fell short of analyst expectations. A year ago, the company reported profit of $135 million for the third quarter.
Revenue of $9.05 billion declined 6% from the year-ago period. The company swung to a loss of 6 cents a share, compared to last year’s earnings of 5 cents a share.
Still, Chief Executive David Zaslav spent much of Thursday’s call with analysts touting his company’s underlying strengths — while avoided giving details about the company’s sale.
“It’s fair to say that we have an active process underway,” Zaslav said.
Warner Bros. Discovery on Thursday reiterated it is forging ahead with previously announced plans to split into two separate entities by next spring. However, the Warner board acknowledged last month that it was also entertaining offers for the entire company — or its parts — after David Ellison’s Paramount expressed its interest with formal bids.
Paramount has made three offers, including a $58 billion in cash and stock for all of Warner Bros. Discovery. That bid would pay Warner stockholders $23.50 a share.
The Ellison family appears determined to win one of Hollywood’s most storied entertainment companies to pair with Paramount, which the Ellisons and RedBird Capital Partners acquired in August.
But Warner Bros. Discovery’s board, including Zaslav, voted unanimously to reject Paramount’s offers and instead opened the auction to other bidders, which is expected to lead to the firm changing hands for the third time in a decade.
Board members are betting the company, which has shown flickers of a turnaround, is worth more than the offers on the table. Despite its rocky third-quarter results, Warner’s stock held its ground in early morning trading at around $22.60 a share.
“Overall we are very bullish,” Zaslav said of the company’s business prospects.
“When you look at our films like ‘Superman,’ ‘Weapons’ and ‘One Battle After Another,’ the global reach of HBO Max and the diversity of our network’s offerings, we’ve managed to bring the best, most treasured traditions of Warner Bros. forward into a new era of entertainment and [a] new media landscape,” he said.
But the company’s results underscored its business challenges.
The studio witnessed a major decline in advertising revenue in the third quarter, reporting $1.41 billion, down 16% from the previous year, which executives attributed to declines in the audience for its domestic linear channels, including CNN, TNT and TLC.
Distribution revenue also took a hit, as the company reported sales of $4.7 billion, a decrease of 4% compared to last year.
Studio revenue increased 24% to $3.3 billion, powered by the success of DC Studios’ “Superman,” horror flick “Weapons” and the latest installment of “The Conjuring.” But even those box office wins couldn’t totally offset shortfalls in other areas of its content business.
Last year, the company was able to sub-license its rights to broadcast the Olympics in Europe, which pushed content revenue to $2.72 billion. But this year, revenue was down 3% to $2.65 billion.
Burbank-based Warner Bros. has had a string of success in theaters, with nine films opening at the top spot globally at the box office. The studio recently surpassed $4 billion in worldwide box office revenue, making it the first studio to do so this year. Warner Bros. last achieved that milestone in 2019.
Zaslav would like to continue with Warner’s break-up plans, which were announced last June.
The move would allow him to stay on to manage a smaller Hollywood-focused entity made up of the Warner Bros. studios, HBO, streaming service HBO Max and the company’s vast library, which includes Harry Potter movies and award-winning television shows such as “The Pitt.”
The company’s large portfolio of cable channels, including HGTV, Food Network and Cartoon Network, would become Discovery Global and operate independently.
Beyond Paramount, Philadelphia-based Comcast, Netflix and Amazon have expressed interest in considering buying parts of the company.
The company said its third quarter loss of $148 million was the result of a $1.3 billion expense, including restructuring costs.
NBCUniversal owner Comcast is indeed interested in some of Warner Bros. Discovery’s assets.
On a Thursday call with analysts to discuss third-quarter earnings, Comcast President Mike Cavanagh suggested the Philadelphia giant might bid for certain Warner assets, primarily the Warner Bros. film and television studios and its streaming service HBO Max.
Comcast isn’t looking to acquire the entire company or Warner’s large portfolio of cable channels that include CNN, TBS and Food Network. Instead, Cavanagh suggested that Comcast’s interest would be more narrow.
He noted that NBCUniversal and Warner Bros. have compatible businesses. Comcast wants to grow its studios business and its struggling streaming service, Peacock, which lost $217 million during the quarter.
“You should expect us to look at things that are trading in our space … It’s our job to try to figure out if there are ways to add value,” Cavanagh told analysts.
But he added a note of caution, saying the company didn’t feel that a merger was “necessary.”
“The bar is very high for us to pursue any [merger] transactions,” he said.
The Warner Bros. Discovery auction comes amid deep turmoil in the industry. Traditional entertainment companies, including Warner and NBCUniversal, have long relied heavily on cable programming fees to boost profit but consumers have been scaling back on pay-TV subscriptions amid the move to streaming.
To address that challenge, Comcast is spinning off its cable channels, including CNBC, MSNBC, USA and Golf Channel, into a separately traded company called Versant. That process is expected to be complete this year.
As part of the transition, the liberal-leaning MSNBC is changing its name to MS Now and dropping the peacock from its network logo, reflecting its pending exit from NBC, which will remain part of Comcast.
Cavanagh suggested that Comcast would not double down in a declining cable channel business that it was already exiting.
But Warner has other compelling businesses, including HBO and its Warner Bros. film and television studio. The Warner Bros. studio has released a string of movie blockbusters this year, including “Superman” and “A Minecraft Movie.”
Warner and NBCUniversal are investing in their respective streaming services but both lag Netflix, YouTube and Walt Disney Co. in terms of subscribers and engagement. Peacock has 41 million subscribers; the service has lost billions of dollars since Comcast launched it five years ago.
To shore up Peacock and the NBC broadcast network, Comcast has doubled down on sports, including striking a $27-billion, 10-year deal for NBA basketball, a contract that kicked in this month with the new season. (Nielsen ratings for the inaugural NBA game on NBC last week were strong — nearly 5 million viewers).
Most analysts believe that Ellison’s Paramount is in the best position to win Warner Bros. Discovery. They point to the Ellison family’s determination, wealth and political connections. Tech titan Larry Ellison, who is backing his son’s bid, is the second-richest man in the world behind Elon Musk, and President Trump views the elder Ellison as a good friend.
In contrast, Trump has displayed a dim view of Comcast Chairman and Chief Executive Brian Roberts, in large part, because of Comcast’s ownership of MSNBC, which Trump has accused of being an arm of the Democratic National Committee.
The tension has led observers to conclude that Comcast would face a stormy regulatory review process with Trump overseeing the Department of Justice, which would likely perform an anti-trust review of any major transaction for Warner Bros. Discovery.
Concerns about Comcast’s ability to get deals through the Trump administration may be overblown, Cavanagh said.
“I think more things are viable than maybe some of the public commentary [suggests],” Cavanagh said.
Paramount Chairman David Ellison’s latest offer to buy Warner Bros. Discovery contained a twist:
Should Paramount, backed by tech billionaire Larry Ellison, pull off the purchase, Warner Bros. Discovery Chief Executive David Zaslav could stay on to help lead the combined enterprise.
“They’re sweetening the pot,” Paul Hardart, a professor at New York University’s Stern School of Business, said of the Ellison family. “It just shows all the little arrows in their quiver they’re using to try to push this deal.”
David Ellison’ unexpected olive branch to Zaslav was contained in a letter this month to Warner Bros. Discovery’s board that offered $58 billion in cash and stock for the entire company. The move underscores the family’s determination to win the entertainment company that includes HBO, CNN and Warner Bros. film and television studios — and an obstacle in their path.
After hustling for decades to get to the big stage, Zaslav, 65, isn’t ready to relinquish the reins. He’s eager to prove critics wrong and complete a turnaround after three painful years of setbacks and cost cuts to reduce the company’s mountain of debt.
Warner Bros. Discovery board members, including Zaslav, have unanimously voted to reject Paramount’s three bids, viewing them as too low and not in the best interest of shareholders, according to two people close to the company who were not authorized to comment.
The board supports Zaslav’s desire to forge ahead with a planned split of the company next spring. But it also has opened the auction to other potential suitors, which is expected to lead to the firm changing hands for the third time in a decade.
Representatives of Zaslav, Warner Bros. Discovery and Paramount declined to comment.
David Ellison’s audacious offer is being guaranteed by his father, Larry Ellison, the world’s second richest man with a net worth that exceeds $340 billion. The Ellisons’ proposal includes paying 80% cash to Warner shareholders and the rest in stock, according to two people familiar with the matter who weren’t authorized to comment. The most recent offer was $23.50 a share.
The Ellisons began their campaign last month, just weeks after David Ellison’s Skydance Media, along with RedBird Capital Partners, picked up the keys to Paramount, which includes CBS, MTV, Nickelodeon and the Melrose Avenue film studio, which has been depleted by decades of underinvestment.
The proposed addition of the more vibrant Warner Bros. would give the Ellisons an unparalleled entertainment portfolio with DC Comics including Superman, “Top Gun,” Scooby-Doo, Harry Potter, “The Matrix” and “The Gilded Age.”
The family would control streaming services HBO Max and Paramount+, nearly three dozen cable channels, including HGTV, Food Network and TBS, and two legacy news operations — CNN and CBS News.
It would also accelerate the trend of uber billionaires, including Amazon’s Jeff Bezos and SpaceX’s Elon Musk, of owning prominent news, entertainment and social media platforms. Larry Ellison also is part of a U.S.-based consortium lined up by President Trump to buy TikTok from its Chinese owners.
“If a trade deal with China is imminent, and TikTok would be aligned, then it would create a new media colossus, the likes of which we haven’t seen,” said veteran executive Jonathan Miller, chief executive of the investment firm Integrated Media Co.
Paramount is in talks to merge with Warner Bros. Discovery.
(Al Seib / Los Angeles Times; Dania Maxwell / Los Angeles Times)
The drama is unfolding as Paramount on Wednesday slashed 1,000 workers in the first round of cuts since Ellison took over. A second wave of layoffs — affecting another 1,000 workers — is expected in the coming weeks, helping fulfill a promise made to Wall Street by Ellison and Redbird to reduce expenses by more than $2 billion.
Combining with Warner Bros. would bring more layoffs, analysts said, and a potential hollowing out of a historic studio.
“Merger after merger in the media industry has harmed workers, diminished competition and free speech, and wasted hundreds of billions of dollars better invested in organic growth,” the Writers Guild of America West, said last week in a statement in opposition to the proposed unification. “Combining Warner Bros. with Paramount or another major studio or streamer would be a disaster for writers, for consumers, and for competition.”
Critics point to a long list of media merger misfires, including the disastrous AOL Time Warner merger a quarter century ago. Some critics contend Walt Disney Co.’s $71-billion purchase of much of Rupert Murdoch’s entertainment holdings didn’t live up to expectations, and AT&T whiffed its $85-billion deal for Time Warner, handing it to Zaslav’s Discovery four years later for $43 billion.
The New York native, a descendant of Jewish immigrants from Poland and Ukraine, had spent 16 years running the Discovery cable channel group, a respectable business, but one that lacked Hollywood flash.
Zaslav grew up on the fringe of New York City, in Ramapo, N.Y., where he’d been a promising tennis player who proudly wore his athletic gear to middle school. Tennis was his identity — until he started getting beat by players he used to whip.
Zaslav’s coach sat him down, bluntly saying he wasn’t putting in the work.
“I vowed that day I would never be outworked again,” Zaslav said during a 2023 commencement address to Boston University graduates. Underlings have long marveled at his indefatigable work ethic.
The speech was meant to be his triumphant return to his alma mater. Zaslav had finally made it to Hollywood, where he was now holding court in an exquisite corner office that had belonged to studio founder Jack Warner.
Zaslav had big plans to turn around Warner Bros. But, in Boston, he suffered a beatdown.
The Writers Guild of America had just gone on strike against his and other Hollywood studios. Protesters heckled Zaslav. Students booed. A plane flew overhead, waving a banner that read: “David Zaslav Pay Your Writers.”
He had assumed control a year earlier, in April 2022, just as Wall Street soured on media companies that were spending wildly to build streaming services to compete with Netflix.
Zaslav inherited a venture bleeding billions of dollars to get into streaming. The merger itself saddled the company with $55 billion of debt. Warner’s stock plummeted.
He and his team spent the first few years slashing divisions, canceling TV programs and contracts, and shelving movies. To further reduce expenses, the company laid off thousands of workers. Hollywood soon viewed Zaslav with derision.
It didn’t help that Zaslav has long been one of the most handsomely compensated executives in America.
There were high-profile stumbles, including jettisoning staff of the tiny Turner Classic Movies channel and an ill-conceived rebrand of its streamer to “Max” before changing the name back to HBO Max.
“The Warner Bros. Discovery merger was a well-intended failure,” Hardart said. “The cable subscriber base shrank at a faster rate than most people had forecast. … Thousands have lost their jobs, the HBO brand has been reimagined and reimagined, films have been mothballed and the future of the Warner Bros. studio is today uncertain.”
Warner Bros. Discovery paid down $20 billion in debt, but $35 billion remains. The debt load has nearly suffocated the company, making it a vulnerable target.
“There was a lot of fixing that David Zaslav and his team had to do,” Bank of America media analyst Jessica Reif Ehrlich said in a recent interview. “It’s been three years of incredibly heavy lifting — but that’s pretty much done now.”
In a note to investors last week, Ehrlich wrote Warner’s strong franchises, including DC Comics, and its voluminous library make it “an extremely attractive potential acquisition target,” one that could fetch $30 a share. Her firm carries a “buy” rating on the stock.
Warner Bros. Discovery Chief Executive David Zaslav and AT&T Chief Executive John Stankey shake hands on May 17, 2021, in New York City.
(Preston Bradford / Discovery)
Last summer, Zaslav announced plans to split the company in two halves.
Zaslav would run Warner Bros., which would consist of the Burbank studios, HBO and the HBO Max streaming service. Longtime lieutenant Gunnar Wiedenfels would helm Discovery Global, made up of the firm’s international businesses and basic cable channels, which face an uncertain future in the streaming era.
Those who know Zaslav believe he’s working to stave off the Ellison takeover, in part, because he wants the chance to bring the company back to its glory, which would ultimately make it more valuable for its investors and prospective buyers.
For Warner management, that’s part of the rub. The Ellisons showed up just as the company was displaying signs of a turnaround, including a hot streak by Warner Bros. that includes “A Minecraft Movie,” Ryan Coogler’s “Sinners,” James Gunn’s “Superman,” Formula One adventure “F1: The Movie,” and horror flick “Weapons.”
Larry, from left, Megan and David Ellison attend the premiere of Paramount Pictures’ “Terminator Genisys” at Dolby Theatre on June 28, 2015.
(Lester Cohen / WireImage)
Ellison’s bidding was designed to thwart Warner’s planned corporate breakup.
For now, analysts said, Zaslav and the Warner board’s current strategy is solid because they have effectively driven up the stock price, which has doubled to $21 a share since the Ellison’s interest became known in mid-September.
“They are doing the right thing,” Hardart said. “In any sale, you try to beat the bushes and get as many people interested. But at some point the board is going to have to make a decision.”
Added one investor: “They’ve gotten Paramount-Skydance to bid against itself, and that only goes so far.”
Analysts expect Philadelphia giant Comcast, owner of NBCUniversal, and potentially Netflix, Apple or Amazon to take a look at the company’s studio, library and streaming assets.
But many see the Ellison’s Skydance as having the edge.
Paramount, in its recent letter to the Warner board, argued that it was the best and most logical buyer.
“What Skydance offers WBD, in many ways, is what it offered Paramount: The ability to be aggressive and push all aspects of the business in a way that most people or companies that have less capital just can’t do,” Miller said. “They are deploying real capital, and they are being the most aggressive folks in the industry right now.”
Warner Bros. Discovery has officially acknowledged the company is up for sale, marking the third time in a decade that its storied assets have been on the auction block.
The company’s board announced Tuesday that it has initiated “a review of strategic alternatives … in light of unsolicited interest the Company has received from multiple parties for both the entire company and Warner Bros.”
The Ellison family, which owns Paramount, started the bidding late last month. With financial backing from his father, Larry Ellison, David Ellison is looking to build an entertainment juggernaut. The family and RedBird Capital Partners finalized their takeover of Paramount in August, and has since made at least one offer for its rival. Paramount wants to buy the entire company, including its basic cable channels that include CNN, TNT, Food Network and HGTV.
Warner Bros. Discovery stock soared 11% Tuesday to more than $20 a share, valuing the company at $50 billion. That’s the highest level since Discovery swallowed the larger WarnerMedia in April 2022.
The company did not disclose the other entities that have expressed interest in buying the company as a whole, or its stable of assets, including premium cable channel HBO, the HBO Max streaming service and the legendary Warner Bros. film and television studio and its campus in Burbank.
“It’s no surprise that the significant value of our portfolio is receiving increased recognition by others in the market,” Chief Executive David Zaslav said in a statement announcing the strategic review.
“After receiving interest from multiple parties, we have initiated a comprehensive review of strategic alternatives to identify the best path forward to unlock the full value of our assets,” he said.
The company last summer unveiled its intention to split into two separate publicly traded entities — an arrangement that most observers saw as the unofficial kickoff of the company’s sale.
That separation process will continue, Warner Bros. Discovery said Tuesday.
The company intended to create two stand-alone entities. One would include the Warner Bros. studio and its expansive library of shows and movies, as well as the HBO Max streaming service. Zaslav was planning to run that enterprise.
The second company, Discovery Global, would comprise the basic cable channels and international operations. Chief Financial Officer Gunnar Wiedenfels would lead that operation.
“We view this as a move to initiate the entire bidding process now, for all bidders, even though not every bidder may be interested in all of WBD,” Raymond James analysts Ric Prentiss and Brent Penter wrote in a Tuesday note to investors.
“WBD is telling other bidders they can bid now instead of waiting for the split, or perhaps they even need to bid now since waiting may prove to be too late,” the analysts said.
Warner Bros. Discovery board intends to “evaluate a broad range of strategic options,” including “an alternative separation structure that would enable a merger of Warner Bros. and spin-off of Discovery Global to our shareholders,” it said in a statement.
“Our decision to initiate this review underscores the Board’s commitment to considering all opportunities to determine the best value for our shareholders,” Warner Bros. Discovery Chair Samuel A. Di Piazza, Jr., said in the statement. “We continue to believe that our planned separation to create two distinct, leading media companies will create compelling value. That said, we determined taking these actions to broaden our scope is in the best interest of shareholders.”
The company did not set a deadline or timetable for the strategic alternatives review, although it had previously said the separation into two distinct companies — Warner Bros. and Discovery Global — would be complete by April.
TD Cowen media analyst Doug Creutz indicated Tuesday’s announcement was simply a formality because investors were well aware the company was in play.
“We continue to think a transaction with [Paramount] … is reasonably likely; we are more skeptical that other, more attractive bidders will emerge,” Creutz wrote.
The announcement hit as Warner Bros. Discovery employees already are nervous about the process and the proposed Ellison takeover, which observers believe would spark a massive consolidation and the elimination of hundreds more jobs.
Some already were suffering from deal fatigue as many are veterans of the company’s two previous sales.
In October 2016, the company, then known as Time Warner Inc., announced its sale to phone giant AT&T. President Trump, who was first elected the following month, strenuously objected to the merger. The government challenged the union, and it took nearly two years to win federal approval. The AT&T years were turbulent. The company restructured, then spent billions to build the HBO Max streaming service.
After three years, AT&T threw in the towel after lining up Zaslav, who had long managed the much smaller Discovery. The April 2022 sale to Discovery burdened the company with more than $50 billion in debt.
Since then, Zaslav and his team have tried to streamline the operations, leading to thousands of layoffs. The company’s debt now hovers around $35 billion.
Allen & Company, J.P. Morgan and Evercore have been retained as financial advisors to Warner Bros. Discovery. Wachtell Lipton, Rosen & Katz and Debevoise & Plimpton LLP are serving as legal counsel.
Billionaire Larry Ellison ponied up the money for his family to acquire the controlling stake in Paramount two months ago, and the tech titan would need to write another huge check should Paramount buy Warner Bros. Discovery.
So, in Hollywood circles, the question has been: How involved is the elder Ellison in Paramount’s strategy and operations?
Paramount Chief Executive David Ellison said he speaks with his father every day, but he drew an important distinction:
“Look, I run the company day to day. Make no mistake about that,” David Ellison said Thursday at Bloomberg’s Screentime media conference in Hollywood, adding that his father had been a “phenomenal” mentor and “we couldn’t have a better relationship.”
“He is the largest shareholder in the business,” Ellison said. “What’s important for everybody to know is the way he approaches this is: How do we maximize value for our shareholders? … I think he’s best in the world for doing that.”
Since the Ellison family and RedBird Capital Partners acquired Paramount in August, its stock is up more than 50%. Much of the run-up came last month after news leaked that Paramount was interested in acquiring Warner Bros. Discovery, which owns CNN, TBS, Food Network and one of Hollywood’s most prolific film and television studios.
Ellison refused to comment on Paramount’s pursuit of Warner Bros. Discovery or whether his team had already made a bid.
But he did shed light on the business strategy behind any pursuit, while trying to tamp down fears that another big merger would result in more cost-cutting, more job losses and a reduction in content spending.
“The way we approach everything is, first and foremost: What’s good for the talent community, what’s good for our shareholders and value creation, and what’s good for basically storytelling at large?” Ellison said. “We’re looking at actually producing more movies [and] more television series … because you need that content.”
Paramount staffers are bracing for a massive workforce reduction next month, part of the company’s goal of finding more than $2 billion in spending cuts.
The company also invested in the construction of a Texas-based production hub for prolific “Yellowstone” creator Taylor Sheridan and agreed to pay $1.5 billion over five years for streaming rights for “South Park,” the Comedy Central cartoon. And Paramount lured Matt and Ross Duffer, who created “Stranger Things,” away from Netflix with an exclusive four-year television, streaming and film deal.
Warner Bros. Discovery, led by Chief Executive David Zaslav, also has declined to discuss Paramount’s interest, although people close to the company have suggested Zaslav would like to see bidding war.
No other studios have publicly expressed interest and, on Wednesday, Netflix Co-Chief Executive Greg Peters downplayed such speculation.
“We come from a deep heritage of being builders rather than buyers,” Peters said during a separate appearance at the Screentime conference, adding the track record for big mergers was not great.
But Wall Street widely expects more consolidation among entertainment firms.
“Ironically, it was David Zaslav last year who said that consolidation in the media business is important,” Ellison said, adding “there are a lot of options out there.” But he declined to elaborate.
Analysts have speculated that, beyond Paramount, few other media companies have financial firepower to pull off a bid. And Paramount has an “in” that several other media companies, including Brian Roberts’ Comcast, lack: a good relationship with President Trump and his administration.
Trump has called Larry Ellison a good friend. After David Ellison spoke with Trump at a June UFC fight, the previous managers of Paramount got traction in their efforts to settle Trump’s lawsuit over a “60 Minutes” interview last fall with Kamala Harris. Paramount paid $16 million in July to settle the suit and weeks later the Federal Communications Commission approved the Ellison takeover of Paramount.
“We have a good relationship with the administration,” David Ellison said.
Walt Disney Co., Universal Pictures and Warner Bros. Discovery on Tuesday sued a Chinese artificial intelligence firm called MiniMax for copyright infringement, alleging its AI service generates iconic characters including Darth Vader, the Minions and Wonder Woman without the studios’ permission.
“MiniMax’s bootlegging business model and defiance of U.S. copyright law are not only an attack on Plaintiffs and the hard-working creative community that brings the magic of movies to life, but are also a broader threat to the American motion picture industry,” the companies said in their complaint, filed in U.S. District Court in Los Angeles.
The entertainment companies requested that MiniMax be restrained from further infringement. They are seeking damages of up to $150,000 per infringed work, as well as attorney fees and costs.
This is the latest round of copyright lawsuits that major studios have brought against AI companies over intellectual property concerns. In June, Disney and Universal Pictures sued AI firm Midjourney for copyright infringement. Earlier this month, Warner Bros. Discovery also sued Midjourney.
Shanghai-based MiniMax has a service called Hailuo AI, which is marketed as a “Hollywood studio in your pocket” and used characters including the Joker and Groot in its ads without the studios’ permission, the studios’ lawsuit said. Users can type in a text prompt requesting “Star Wars’” iconic character Yoda or DC Comics’ Superman, and Hailuo AI can pull up high quality and downloadable images or video of the character, according to the document.
“MiniMax completely disregards U.S. copyright law and treats Plaintiffs’ valuable copyrighted characters like its own,” the lawsuit said. “MiniMax’s copyright infringement is willful and brazen.”
“Given the rapid advancement in technology in the AI video generation field … it is only a matter of time until Hailuo AI can generate unauthorized, infringing videos featuring Plaintiffs’ copyrighted characters that are substantially longer, and even eventually the same duration as a movie or television program,” the lawsuit said.
MiniMax did not immediately return a request for comment.
Hollywood is grappling with significant challenges, including the threat of AI, as companies consolidate and reduce their expenses as production costs rise. Many actors and writers, still recovering from strikes that took place in 2023, are scrambling to find jobs. Some believe the growth of AI has threatened their livelihoods as tech tools can replicate iconic characters with text prompts.
While some studios have sued AI companies, others are looking for ways to partner with them. For example, Lionsgate has partnered with AI startup Runway to help with behind the scenes processes such as storyboarding.
Warner Bros. Discovery has joined a key copyright infringement case that could test the legal bounds of using artificial intelligence to create digital replicas of well-known characters.
The company on Thursday filed a copyright infringement lawsuit in Los Angeles federal court against AI company Midjourney Inc., alleging its image generator produces blatant rip-offs of Warner’s well-known and copyright-protected characters, including Superman, Batman, Wonder Woman and Scooby-Doo.
With the suit, Warner Bros. Discovery joins a legal fight brought in June by Walt Disney Co. and Comcast’s Universal Pictures. The Disney and Universal lawsuit marked the first salvo by major studios to elevate the legal struggle over AI-enabled intellectual property, calling it content theft.
The addition of Warner Bros. Discovery could boost Disney’s and Universal’s case. The three entertainment industry leaders control much of the most valuable intellectual property in Hollywood.
Disney’s stable includes Star Wars, Woody the Cowboy, Winnie the Pooh, the Simpsons and Disney princesses. Universal boasts such beasts as the Hulk, Shrek and the Minions.
Warner Bros. controls characters from DC Comics , Looney Tunes and Hanna-Barbera .
It sued on behalf of Warner Bros. , DC Comics, Turner Entertainment Co., Hanna-Barbera Productions, Inc., and the Cartoon Network. The company, which asked for a jury trial, is seeking unspecified damages and an injunction.
The companies allege the four-year-old San Francisco firm Midjourney, which has millions of paid subscribers, built its business off decades of hard work by Hollywood artists, writers and studios.
Midjourney, on its website, describes itself as “an independent research lab exploring new mediums of thought and expanding the imaginative powers of the human species.” Midjourney offers its subscribers use of an image generator to create high-resolution digital depictions, including famous characters like Batman.
Warner Bros. Discovery, Disney and Universal allege that Midjourney trained its generative AI programs by using their copyrighted works. They contend that Midjourney-enabled creations are almost identical to their original copyrighted cartoons. Warner Bros.’ lawsuit included side-by-side renderings of its characters and Midjourney’s reproductions to illustrate the identical details, such as the color of Scooby-Doo’s collar and fur.
Midjourney did not immediately respond to a request for comment.
“The heart of what we do is develop stories and characters to entertain our audiences, bringing to life the vision and passion of our creative partners,” Warner Bros. Discovery said in a statement. “Midjourney is blatantly and purposefully infringing copyrighted works, and we filed this suit to protect our content, our partners, and our investments.”
Warner Bros. Discovery pointed to the value of its franchises, including its DC Comics movies. Films featuring the DC Extended Universe, which were released from 2018 through 2023, generated more than $7 billion in global ticket sales. Each film earned an average of $479 million, the lawsuit said.
“Only Warner Bros. Discovery has the right under U.S. Copyright law to build a business around reproducing, preparing derivative works, distributing, publicly displaying, and performing images and videos featuring its copyrighted characters,” the company said in its lawsuit.
Such exclusive rights and protections allow Warner Bros. Discovery and other studios to make massive investments in content, the lawsuit said, adding: “That is the cornerstone of the U.S. Copyright Act.”
Disney and Universal applauded Warner Bros. for joining their legal battle.
“Disney is committed to protecting our creators and innovators, and we’re pleased to be joined by Warner Bros. Discovery in the fight against Midjourney’s blatant copyright infringement,” Disney said in a statement.
Warner Bros. Discovery on Monday unveiled the names of the proposed separate entities, post-breakup: Warner Bros. and Discovery Global.
When the corporate spin-off is complete some time next year, the venerable Burbank film and television studio properties, HBO, HBO Max streaming service and gaming properties will be part of a slimmed-down iteration called Warner Bros.
The cable networks, including TNT, CNN, HGTV and Animal Planet, and sports app Bleacher Report, will make up Discovery Global.
“We will proudly continue the more than century-long legacy of Warner Bros. through our commitment to bringing culture-defining stories, characters and entertainment to audiences around the world,” Warner Bros. Discovery Chief Executive David Zaslav said in a statement.
Zaslav, the longtime Discovery executive, is jumping to the Warner Bros. side, while his lieutenant, Chief Financial Officer Gunnar Wiedenfels, will lead Discovery Global.
The proposed corporate split is a recognition that the merger that created Warner Bros. Discovery three years ago was a misfire that eroded the value of some of the industry’s most premium brands. Zaslav championed the merger as a way to roll up several companies into one.
At the time, WarnerMedia — with its studios, HBO and Turner networks — was owned by AT&T, which was desperate to exit Hollywood after losing billions of dollars on acquisitions.
But Wall Street quickly soured on the consolidation that married nearly two dozen basic cable channels, including HGTV and Food Network, with the prestige properties of HBO and the Warner Bros. studios in Burbank.
AT&T’s sale to Discovery left Zaslav’s company struggling to tame more than $40 billion in debt. Investors also have a dim view of cable channels as the shift to streaming prompted a huge migration of viewers.
Senior executives joining Zaslav at Warner Bros. include: HBO Chairman Casey Bloys; Warner Bros. TV Group Chairman Channing Dungey; the film co-chairs Pam Abdy and Mike De Luca; DC Studios leaders James Gunn and Peter Safran, Streaming and Gaming Chief Executive JB Perrette; Chief Operating Officer Bruce Campbell and Chief Communications Officer Robert Gibbs.
Discovery Global will include CNN Chairman Mark Thompson; TNT Sports Chairman Luis Silberwasser; international operations head Gerhard Zeiler; U.S. Ad Sales President Ryan Gould; and Chief Development Officer Anil Jhingan.
“As we prepare for the launch of Discovery Global, our enthusiasm for the opportunities ahead only grows thanks to our leading portfolio of beloved brands and programming, our worldwide footprint for adults, kids, and families, and now the experienced and talented leadership team,” Wiedenfels said.
Warner Bros. has started a search for a CFO as well as a chief people officer. Wiedenfels plans to hire a top communications and public affairs officer.
Warner Bros. Discovery renamed its streaming service HBO Max on Wednesday, formally reversing its decision from two years ago to dump the prestigious HBO brand in a bid to make the service more appealing to a mainstream, meat-and-potatoes crowd.
The gambit to chase Netflix with a service called Max didn’t work. Warner Bros. Discovery’s leaders eventually recognized the tremendous value in the HBO name, and sheepishly brought it back for an encore.
“The good news is I have a drawer full of stationary from the last time around,” HBO Chairman Casey Bloys said in May, making light of Warner Bros. Discovery’s about-face during the company’s annual programming upfront presentation to advertisers at Madison Square Garden in New York.
The move marks the fifth name for the service in 15 years.
HBO’s first digital offering, introduced in 2010, was called HBO Go. Eventually the company added an HBO Now app. Then, in 2020, when the company launched its comprehensive streaming service with Warner Bros. movies and television shows, executives decided the HBO Max name would play to the company’s strengths while beckoning customers with a souped-up product and moniker to match.
That lasted until Chief Executive David Zaslav stepped in. The company truncated the name to Max because Zaslav and other executives felt the need to create some distance from HBO’s signature shows to make room for the nonscripted fare of Discovery’s channels, including HGTV and Food Network.
Now it’s back to HBO Max.
The company has said the shift was a response to audiences’ desire for quality over quantity.
“No consumer today is saying they want more content, but most consumers are saying they want better content,” the company said in May.
The change also represents a recognition that Warner Bros. Discovery, a medium-sized media company with a huge debt burden, couldn’t compete with Netflix, which tries to offer something for everyone.
And while some of the Max-branded shows, including “The Pitt,” are critically acclaimed, it was the HBO fare, including “The White Lotus,” that has been the most consistent draw for subscribers.
HBO built its legacy as a premium cable channel that required an additional fee on the monthly cable bill. Such groundbreaking series as “The Sopranos,” “Game of Thrones” and “Sex and the City” put the channel at the vanguard of prestige programming.
Most subscribers who currently have Max won’t need to download a new app, company insiders said.
An app update will eventually change the blue Max logo to a black HBO Max one.
Staff writer Stephen Battaglio contributed to this report.
Warner Bros. Discovery is in poor shape — so much so that Chief Executive David Zaslav has decided to unwind the 2022 merger he orchestrated by splitting the company in two.
But Zaslav himself is doing just fine, to the chagrin of shareholders.
In a rare searing rebuke, investors recently cast a symbolic vote disapproving of Zaslav’s 2024 compensation package, which rose 4% to $51.9 million compared with the year before.
The package, approved by the company’s board of directors, ensured that Zaslav remained one of the nation’s highest-paid corporate leaders. Proxy advisory firm Institutional Shareholder Services, known as ISS, described the company’s executive compensation packages as “an unmitigated pay-for-performance misalignment.”
The situation renewed scrutiny of the compensation levels for leaders of the top entertainment companies, which remain high compared with peers in other industries.
Although 2024 was a bad year for Hollywood, it was a very good year for some of the industry’s top executives, according to a survey of data by Equilar, which studies executive pay, for The Times.
The median compensation for those executives for 2024 was $33.9 million, up 7% from 2023, Equilar said. That’s about double the median compensation of CEOs at S&P 500 companies, which was $17.1 million last year.
The compensation data include stock options, base salaries, bonuses and other perks for CEOs from Netflix, Fox Corp., Roku, Lions Gate Entertainment Corp., AMC Networks, Comcast, Warner Bros. Discovery and the Walt Disney Co.
Paramount was excluded from the median data because of a change from one CEO to three in April 2024.
“The compensation packages remain somewhat out of whack based on the good old days where the margins were substantially higher,” said Evan Shapiro, a former NBCUniversal executive who now runs his own company. “The Hollywood era got used to very specific — some would argue irrational — pay packages and never readjusted itself when the business went haywire.”
Pay packages increased for Netflix co-CEOs Ted Sarandos and Greg Peters, reflecting the streaming giant’s strong performance. The value of Sarandos’ pay package went up 24% to $61.9 million, while Peters’ went up 50% to $60.3 million.
Other executives whose compensation increased included Bob Bakish, who was ousted as CEO of Paramount in April 2024. He had a package worth $86.96 million in 2024 (which included his roughly $69 million severance), up 178% from $31.3 million a year earlier.
Disney chief Bob Iger, who spent 2024 mounting a turnaround for the Burbank-based company, earned $41.1 million, up 30% from the previous year. During the year, Disney had renewed strength at the box office and achieved streaming profitability after years of losses.
Fox Corp.’s CEO Lachlan Murdoch’s total pay rose 9% to $23.8 million, while Roku CEO Anthony Wood got a bump of 37% to $27.7 million.
Others got a pay cut. Comcast CEO Brian Roberts’ 2024 compensation declined 5% to $33.9 million, primarily due to a lower cash bonus. AMC Networks CEO Kristin Dolan had a 40% drop to $8.7 million last year related to a $6.8-million equity award she received in 2023 tied to her promotion to CEO.
Lionsgate CEO Jon Feltheimer earned $18.2 million in the company’s fiscal 2024 year, down 15% compared with $21.5 million from fiscal 2023.
For 2024, the highest-paid chief executives among publicly traded media and entertainment companies compiled by Equilar for The Times were Bakish, Zaslav, Sarandos, Peters and Iger.
Most of the companies declined to comment or referred The Times to proxy statements filed with the U.S. Securities and Exchange Commission. Fox Corp. did not return a request for comment.
The increase in pay reflects a broader trend at publicly traded companies. Compensation is increasing as companies try to align pay with performance by handing out large stock awards, said Amit Batish, senior director of content for Equilar. Certain awards such as stock options typically benefit executives only if the stock goes up.
Some executives are also adding security perks after the killing of UnitedHealthcare CEO Brian Thompson last year, he said.
Several Hollywood executives had pay packages last year that were worth substantially more than the median, Equilar said. With so much change and disruption happening in the entertainment business and plenty of competition for skilled leadership, companies believe they need to pay up to hold on to executive talent.
“Especially in the entertainment industry that’s constantly evolving, with streaming services taking over, there’s constant fluctuations in the market, so companies are looking to find ways to keep their executives on board and motivated,” Batish said.
Sky-high executive compensation has resurfaced debate about a subject that has been simmering since even before the 2023 strikes led by writers and actors — the widening pay gap between executives and workers.
Many entertainment workers have left Southern California due to the lack of work, as more productions are moving out of the area due to increased costs. Disney, Warner Bros. Discovery, NBCUniversal and Paramount have continued to lay off employees. Some entertainment workers struggling to find jobs have adopted the saying “Persist to ’26,” replacing last year’s “Survive ‘til ’25.”
“Any survey of executive pay, generally there’s a disconnect between what people see in their own checking accounts and when they see what executives, particularly for top Fortune 500 companies, earned,” said David Smith, a professor of economics at the Pepperdine Graziadio Business School. “There’s often discontent with the chasm between the rank and file and CEOs.”
Zaslav became a symbol of that ire in 2021 when his compensation package was valued at $246.6 million, which included stock options tied to the merger. The value of his 2024 compensation was much lower at $51.9 million, but still higher than other executives such as Disney’s Iger.
Following the nonbinding shareholder “say on pay” vote, Warner Bros. Discovery pledged to address shareholder concerns. Those changes are expected to lower Zaslav’s future payouts. Similarly, Disney and Netflix in recent years have been hit with negative shareholder votes on the pay, leading to adjustments.
Zaslav’s target annual cash bonus opportunity will shrink from $22 million to $6 million after splitting Warner Bros. Discovery in two, separating studios and streaming services from linear cable networks, the company said. Zaslav’s base salary would remain $3 million.
“We structured the new compensation packages to address shareholders’ feedback by fostering pay-for-performance alignment,” Warner Bros. Discovery board chair Samuel A. Di Piazza Jr. said in a statement.
While Warner Bros. Discovery worked on retiring $4.4 billion in debt through cost-cutting and launched its streaming service Max (which is being rebranded back to HBO Max) in 70 markets last year, the company also had some fumbles, including losing the NBA on its TV networks.
“It appears the board may have been out-negotiated,” said Lloyd Greif, chief executive of Los Angeles investment bank Greif & Co. “They created incentives that did not directly translate into a higher stock price, or higher revenue and EBITDA growth” — referring to earnings before interest, taxes, depreciation and amortization. “So,” he added, “you have to look at the results and say, the board blew the call.”
The company’s compensation committee said it took into account Zaslav’s performance across different goals including revenue, cash flow, enhancing the motion picture slate, cost controls, launching Max globally and securing talent.
Warner Bros. Discovery’s revenue in 2024 fell 5% to $39.3 billion, compared with 2023. Adjusted earnings excluding certain items fell 11% during that same time period. The stock price declined about 7% in 2024.
“It just sends a very bad message to your teams,” said Paul Verna, vice president of content at research firm Emarketer, adding that leaders should inspire their teams amid challenges facing the industry. “It’s very hard to do that when you’re firing thousands of people but not really absorbing any pain yourself in your own compensation.”
The committee saw the loss of the NBA U.S. TV rights as a positive, saying it resulted in a “more efficient long-term relationship with the league,” according to the company’s proxy filing.
When the compensation committee evaluated those figures, it took out costs related to a joint venture called Venu Sports that was meant to launch in 2024 but was scrapped, as well as new sports rights programming and packages.
That irked some groups, including ISS, though some executive compensation experts said it is not uncommon for companies to factor out some costs deemed to be out of the executive’s control.
The reverberations of the shareholder vote continue.
It could cause the board to put pressure on the compensation committee to improve its performance or activist shareholders to target the company for a proxy contest, Lawrence Cunningham, director of the University of Delaware’s Weinberg Center for Corporate Governance, wrote in an email to The Times.
“Shareholder votes on pay, even when non-binding, send a signal that can be important,” Cunningham wrote. “A 60% no vote is huge.”
Hollywood’s workforce just needed to “survive ’til ’25.” That was last year’s hopeful mantra for entertainment industry pros battered by layoffs and limited film and TV production.
But now as the year approaches its halfway point, a bleaker saying seems apt: “Exist ’til ’26.”
Rosy projections of a robust recovery this year have not materialized. If anything, the downturn, at least in terms of employment at the studios, has continued.
It is yet another sign that the industry is still recovering from the effects of the pandemic and the dual writers’ and actors’ strikes of 2023, while also trying to navigate the changing media landscape.
As people continue to cut the cord and viewership of traditional broadcast television declines — taking with it valuable ad dollars — companies are reallocating resources to their streaming platforms. They’re cutting back on spending after massive investments during the so-called streaming wars. And now, economic uncertainty from President Trump’s tariffs has rattled the markets, creating a difficult overall business environment.
“We’re going through this squeezing of our ecosystem in Hollywood,” said J. Christopher Hamilton, a practicing entertainment attorney and a professor at Syracuse University who focuses on the business of media. Companies are “trying to find a new normal, adjust to the financial pressures that the global economy is under and also figure out what is the smartest business model and path forward.”
It’s a far cry from the hints of optimism some in the industry had toward the end of last year. With the strikes finally in the rearview mirror, and delayed films debuting in theaters and production slowly coming back, the thought was “we’re out of the strikes, we’ll be able to go back to the market, sell and buy,” Hamilton said.
Instead, many of the recent conversations he’s had with clients and media executives have been centered on fear and uncertainty. People will tell him that it’s hard to sell a TV show, or that they don’t know if their job will be around in two weeks. The international market has also become more favorable to local content, meaning U.S.-made shows are now heavily competing with homegrown series.
“It’s a horrible time in the business from the content creation, content production standpoint,” Hamilton said. “People don’t want to take risks. They’re fearful of losing their jobs.”
The idea of “survive ’til ’25” was always a myth, said Stephen Galloway, dean of Chapman University’s Dodge College of Film and Media Arts. The issues the industry is facing are long term and disruptive.
“The industry is retrenching,” he said. “And there’s going to be a shake-up that lasts for quite a while.”
The continued decline of linear TV is one issue nearly all studios are grappling with. Though viewership is down and can drag on a company’s stock price, traditional broadcast TV still makes money, making it important to manage costs and generate profit for as long as possible.
That also means job cuts in those areas.
Disney’s layoffs hit its film and television marketing teams, television publicity, casting and development as well as corporate financial operations. Warner Bros. cut employees from its cable TV channels. While Paramount did not disclose the departments affected by the layoffs, its co-chief executives acknowledged in a note to staff that the decision came as the company navigates “continued industry-wide linear declines.”
Linear TV’s struggles have led media companies to spin off their traditional television assets, including cable networks, into separate entities. Santa Monica-based Lionsgate got the ball rolling in 2023 when it said it would sever its film and TV studio business from its pay cable unit Starz, a transaction that was completed this year.
The Warner Bros. split is “an acknowledgment that the idea of building something big enough to compete in the streaming war didn’t work,” said Peter Murrieta, a writer and deputy director of the Sidney Poitier New American Film School at Arizona State University. Moreover, Netflix’s dominance in the streaming space has made many companies reevaluate their plans.
“There were already signs pointing to the unsustainability of the number of shows and the number of streamers,” he said. “It’s the aftereffects of trying to compete at the streaming level and thinking that’s the future. Resources were put there, and now they have to retrench.”
Disney Chief Executive Bob Iger has said as much in comments to Wall Street, acknowledging that the House of Mouse pumped out too many shows and movies to compete against Netflix.
The company has since pulled back amid Iger’s call to focus on quality over quantity and to reach profitability in its streaming services, which it achieved last year. The company’s latest job postings now include a number of openings for software engineers.
The larger economic environment, too, is of concern to those in Hollywood. In addition to industry-specific concerns about artificial intelligence and the decline of traditional TV and cable, the entertainment business is also grappling with domestic and global financial uncertainty. Paramount’s executives cited the “dynamic macro-economic environment” in its note to employees.
“Right now, there is an absolute sense of terror among people in the business that they’ll be out of a job, that the old models aren’t working, that they won’t earn what they once did,” said Galloway of Chapman. “They’re not wrong to be afraid. I think they’re wrong to be as afraid as they are because it’s a retrenchment, and it’s a retrenchment following a gigantic expansion.”
White-collar jobs in other industries are also being threatened by technological change, greater investment in AI and retrenchments after pandemic-era hiring sprees. Earlier this year, tech companies such as payment firm Square, Meta, Google and Workday said they would lay off employees.
But Hollywood has always been a boom-and-bust industry, Galloway said, noting that in times of change, new opportunities always arise. Jobs in virtual production or AI are becoming more numerous. As studios cut back on their staff, they will still need producers to shepherd shows and films, said Susan Sprung, chief executive of the Producers Guild of America trade group.
“These companies aren’t getting out of the business of producing great programming, movies and television,” she said. “If you don’t have as large of an executive team that can help supplement that, it makes it even more important that you have good producers working on every one of your projects.”
While the current environment is tough, the industry has always been difficult, and people in this business are resourceful and intentional about their work, said Murrieta of Arizona State.
Though it is a trying time, he said, “there’s got to be hope.”
Warner Bros. Discovery is the latest media company to shed employees from its cable TV channels, with several dozen positions jettisoned Wednesday.
The layoffs, confirmed by an executive not authorized to comment publicly, are aimed at improving efficiency across the company as cable TV revenues sink because of cord-cutting.
The moves at Warner Bros. Discovery come two days after the Walt Disney Co. implemented a bloodletting across its film and television marketing teams, television publicity, casting and development as well as corporate operations.
The cuts at Disney numbered in the hundreds. The figure for Warner Bros. Discovery is much smaller than that, though an exact number was not disclosed.
Warner Bros. Discovery’s movie and TV production studios and streaming operation, soon to go back to its earlier name, HBO Max, will not be hit by the cutbacks.
The cuts come as Warner Bros. Discovery is said to be pondering a possible spinoff of its declining cable TV assets, which include its Turner channels, Discovery Networks, HGTV and Food Network, similar to what Comcast is doing with its NBCUniversal cable outlets (with the exception of Bravo).
Comcast is putting MSNBC, CNBC, the Golf Channel, USA Network and other outlets into a new company called Versant, separating the mature businesses from the rest of the company as it focuses on streaming.
Warner Bros. Discovery recently reorganized into two business units. The entertainment giant last year took a $9.1-billion writedown to reflect the declining value of its TV networks.
The cuts at Warner Bros. Discovery come just a day after a rare shareholder rebuke of its executive pay packages, a sign of growing unhappiness with the company’s financial performance.
A majority of Warner Bros. Discovery shareholders voted against the 2024 compensation package given to Chief Executive David Zaslav and other executives at the company’s recent annual meeting, according to a regulatory filing.
Almost 60% of the votes cast came in against the 2024 executive pay package at the company, according to a regulatory filing Tuesday. The vote is nonbinding, and thus symbolic.
