Warner Bros may not exist for much longer, as it prepares for a massive merger or sale.
Warner Bros Discovery has made many bald investments lately for a company so deep into debt. Variety reported a series of major deals closed by Warner Bros, including development contracts with Tom Cruise, Margot Robbie, and Ryan Gosling.
The company also announced the budget for Joker: Folie a Deux will double the first one, coming in at $200 million.
These investments seemingly make no sense for a company making millions in losses every quarter. In Q3 Warner Bros reported $417 million in net losses, which are expected to mount in the final quarter too.
WBD stock price dropped almost 38% in one year, falling almost 18% year-to-date.
The company also recently came out of a messy merger with Discovery, whose lock-up period will end next April. Since the merger fell through, CEO David Zaslav cut over $2 billion in costs, purging several TV shows and movie franchises. Zaslav himself admitted that last year’s Hollywood strikes likely cost the company over $300 million.
So why is Warner Bros on a spending spree all of a sudden? According to many people familiar with the industry, the company is “painting a house before it hits the market”, as Variety puts it.
Many insiders expect Warner Bros to make a new bid for a sale or a merger in the coming months, most likely after April’s deadline. At the moment, they’re trying to sweeten the deal with the brightest and hottest stars in Hollywood.
What Warner Bros merger means for Hollywood
Hollywood is going through a swath of massive changes. Refocusing solely on streaming has proved a failing strategy, with big studios now seeking ground-breaking theatrical releases the likes of Barbie and Oppenheimer.
But for Warner Bros, a relatively small studio in Hollywood, the failure of streaming was a disaster. Paired with Zaslav’s constant cost-cutting, low-risk theatrical releases, the company only managed to pile up an increasing amount of debt.
The most likely scenario now is a merger with a similarly-sized studio like Universal or Paramount. The two, however, may prefer a merger with each other rather than handle Warner’s hot potato.
Another option is the acquisition from a much larger company. Apple has been poking the film industry for years and has enough cash reserves to cover Warner’s debt and some more.
In both cases, it will represent a major shift in the industry. There will be one fewer major studio in Hollywood, increasing consolidation and decreasing competition. This will likely remain the industry’s new standard until studios figure out a way to balance streaming and theatrical.
