David Zaslav, CEO of Warner Bros. Discovery caused a lot of concern earlier this year when he quickly started canceling movies and television series as part of his strategy to increase the company’s revenue. He reportedly made $246.6 million in 2021 due to the success of the media company (Discovery) he managed. Compared to the prior year, the company’s financial situation was difficult in 2022.
Revenue of just over $43 billion and EBITDA of $9.2 billion was reported. The FCF appeared to estimate $3.3 billion. Everything fell within or exceeded the company’s guidance, demonstrating the company’s sound financial condition.
Nevertheless, it’s important to remember that the company’s guidance was reduced as a result of the year’s challenging beginning. Therefore, the top executives at Warner Bros. Discovery are encouraged to share the company’s new corporate focus of boosting free cash flow and lowering debt.
According to recent reports, the CEO of Warner Bros. Discovery, David Zaslav announced on 6 March, that it would be changing the compensation plans for its top executives for tax benefits. They will be rewarding them with performance stock units if they are successful in raising cash flow and lowering the company’s leverage.
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David Zaslav Modifies the Rules for Tax Benefits After Firing Johnny Depp
In 2021, the Chief Executive Officer of WBD, David Michael Zaslav, reportedly received a total compensation package of $246 million due to Warner Media and Discovery’s merger. Naturally, a large portion of that payment will be based in part on performance (more specifically, on share price, a metric that few entertainment companies have recently been able to meet). His salary for 2022 will be made public in the coming weeks. The FCF yield is expected to increase from there and should reach 15% based solely on the company’s guidance for 2023.
The changes to the Warner Bros. Discovery executive compensation program is intended to further motivate Company employees, according to WBD board chairman Samuel A. Di Piazza, Jr. In a statement to The Hollywood Reporter, he said,
“This will be including members of its leadership team and others whose efforts are critical to achieving the key near-term financial objectives of increased free cash flow and reduced leverage.”
It’s not the first time that a company has altered its plans to increase its cash flow.
Last year, on November 5, Warner Bros. informed the London cast of the untitled third Fantastic Beasts franchise that Johnny Depp had unexpectedly been removed from the shooting schedule.
Toby Emmerich, the head of the film for the studio, had made a choice to break off relations with the actor the day before, who was set to return as the evil wizard, ‘Gellert Grindelwald’ in the five-film series. The Hollywood Reporter quotes sources as saying that Warners wanted to wait for the outcome of the legal process before deciding whether to keep Depp in the franchise.
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Reducing Debt Leverage In 2023 And 2024 Is A Top Priority
According to management, producing significant free cash flow will be a key focus in 2023 and 2024 in order to significantly reduce debt leverage.
In a recent earnings call with analysts, WBD made it clear that it is on track to reduce its leverage from 5X at the end of last year to 4X by the end of 2024 and reiterated that it will be in the 2.5X to 3X range by then. But in order to do that, it needs money to pay off that debt, which is why free cash flow is once again receiving attention.
Last year, WBD took decisive action to cut costs, including canceling many important movies. These actions allegedly included layoffs (related to the merger) and taking $3.5 billion in content write-downs. The company wants to make its streaming services profitable so that it can generate free cash flow.
Even though the industry is struggling, legacy TV channels are already making a ton of money, so there is an increasing need to make streaming profitable.
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Source – The Hollywood Reporter