How David Zaslav can save Warner Bros. Discovery as the cable bundle collapses, according to a top media analyst

• Wall Street is souring on David Zaslav after Warner Bros. Discovery's discouraging earnings report.
• The media conglomerate is suffering as cord-cutting occurs at a faster pace.
• Media analyst Tim Nollen suggests a path for Zaslav to turn his troubled firm around.

David Zaslav was already on Hollywood's bad side, and now he's losing Wall Street's support.

Some analysts now say the embattled media executive should break up Warner Bros. Discovery , but there may be ways to engineer a turnaround without selling off assets or doing mass layoffs .

Patience is running thin for Zaslav, as WBD shares hit an all-time low on Monday and are now down more than 70% since the merger that created the company in April 2022. The latest wave of panic stems from WBD's ugly Q2 earnings report , as its revenue fell 6.2% from 2023 and adjusted profits tumbled 16.5%.

To make matters worse, Zaslav & Co. revealed last week that they took a $9.1 billion writedown on their TV networks , essentially admitting that they drastically overvalued those assets. WBD wasn't alone: Paramount soon followed suit by slashing the value of its TV assets by $6 billion .

Those moves show just how rapidly the cable TV business is unraveling . Over 8 million households have cut the cord in the last two years, according to Macquarie Research, and quit rates are accelerating. The firm found that pay TV subscriptions plunged about 8.5% in each of the first two quarters of 2024, which helps explain the 5% drop in TV advertising revenue last quarter.

Even more worrying for media companies is that streaming isn't replacing pay TV's profits. WBD's direct-to-consumer segment still loses money, and its streaming revenue actually declined 6% from last year — even though Max added 3.7 million subscribers. And while Disney and Paramount reached streaming profitability in Q2, investors didn't reward them for it.

"Warner Bros. and Paramount are in the most trouble because they still have the highest exposure to the bundle — aside from Fox — and the biggest alternative bets in streaming, which are not really working out for them that well yet," Tim Nollen, Macquarie's top media analyst, recently told Business Insider.

While Nollen isn't bullish on WBD, he thinks there are ways Zaslav can preserve his brainchild. He outlined four such paths, though success is far from guaranteed.

A 4-part game plan for Zaslav

1. Make Max an international hit

WBD's flagship streaming service will determine its future, for better or worse.

Max has underwhelmed since its rebrand last May , due to an elevated cancellation rate compared to its peers and modest subscriber growth. WBD's streaming business, which includes Discovery+, has added 11 million customers in the last two years — better than Disney+ and Hulu but well below Peacock and Paramount+, though those services are newer and smaller. Surprisingly, Max and Discovery+ lost about 300,000 US customers in Q2.

However, there's a glass-half-full case for Max. WBD added 3.9 million streaming subscribers abroad last quarter, thanks to its rollout across Europe ahead of the Olympics, which the company broadcasts outside the US. That followed 1.3 million additions in Q1 as Max launched in Latin America.

If Max maintains that momentum abroad, Nollen believes WBD will be in a much better spot.

2. Improve ad targeting to deliver streaming profits

As WBD brings more users to Max, Nollen said it must make more money from each by improving its advertising technology.

Streaming allows advertisers to know not just how many people are watching, but who they are, what content they like, and where they're located. Those insights are valuable, so the clearer they are, the more attractive a platform is for ad buyers.

Nollen said better ad targeting on a larger customer base would significantly help WBD in its quest for streaming profitability. The company has already made strides, as its ad revenue has nearly doubled in the past year, driving its average revenue per user 9% higher in the US.

"Anything they can do to expand their advertising tier of users is helpful because it gets more users on to attract the advertising eyeballs, and then they use the technology to better monetize that," Nollen said.

3. Hold onto sports rights — and hope Venu is a hit

Five months ago, Nollen told BI that NBA broadcast rights were "essential" for WBD to land . Instead, Zaslav's team was outbid by Comcast's NBC and Amazon, which Nollen said is a borderline disaster for WBD. Unless a long-shot lawsuit pans out, WBD will lose NBA rights.

However, WBD still has broadcast deals in place for the MLB, NHL, college basketball, and college football, Nollen noted. WBD's sports offering is weaker without the NBA, but it should still be strong enough to keep cable carriers from dropping TNT and TBS — even if affiliate fees for those networks decline.

"They might be able to hold the fort and be just barely good enough," Nollen said. "It is possible, but the NBA would've made it much more likely to succeed."

WBD's sports channels are also part of the Venu sports streaming service that's launching this fall. If that service attracts enough cord-cutters, it could help stop the bleeding in WBD's fast-declining pay TV business in a best-case scenario.

4. Join forces with other media firms

Although WBD is struggling as the pay-TV business shrinks, the silver lining is that it's not alone. By teaming up with rivals like Disney through the Max-Hulu-Disney+ bundle , WBD could attract new customers while reducing the cancellation rate that often plagues streamers.

These partnerships may become increasingly common as media companies compete with tech giants that aren't weighed down by declining pay-TV businesses.