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Can Warner Brothers Discovery Recover from the WGA Strike?

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Warner Bros. Discovery stock price forecastThe Writers Guild of America (WGA) initiated a strike on May 2, 2023, after new contract negotiations with the Alliance of Motion Pictures and Television Pictures (AMPTP) fell flat on May 1, 2023. The ramifications of the strike have rippled across media and production networks and studios.

Key Points

  • The Writers Guild of America (WGA) went on strike on May 2, 2023, causing production delays and shutdowns for all major studios.
  • Late-night talk shows went dark after the strike.
  • The last WGA strike lasted 100 days in 2007, causing many shows to be delayed for up to a year, like The Office.
  • The nuclear trigger is the Screen Actors Guild (SAG-AFTRA) contract negotiations that expire on June 30, 2023, which could trigger a strike of 160,000 members that include actors, singers, journalists, broadcasters, dancers, DJs, news writers and news editors and other media professionals.
  • SAG-AFTRA members have already authorized a strike if negotiations fail.
  • WarnerMedia has seen many of its HBO shows put on hold but may weather the strike better than national TV networks that rely on commercial advertisers.
  • 5 stocks we like better than Warner Bros. Discovery

Media and entertainment giant Warner Bros. Discovery Inc. NYSE: WBD faces production shutdowns on many projects in addition to other entertainment providers, including Netflix Inc. NASDAQ: NFLX, The Walt Disney Company  NYSE: DIS, Comcast Co. NASDAQ: CMCSA and Paramount Global NASDAQ: PARA.

The Key Issues Behind the Strike

The biggest issue stems from the advent of streaming services and their effect on residuals. When syndication was prominent, writers would receive residuals whenever the piece of media they created was re-aired, resold or repackaged. This results in receiving royalties for years since writing is often a freelance job.

However, the advent of streaming services has cut down residual payments to nearly zip. Streaming services tend to pay an upfront flat fee for creatives. Artificial intelligence (AI) is another emerging and potentially disruptive technology that can further squeeze out more writers.


Writers are also fighting the "mini-rooms" where fewer writers are contracted for shorter periods in writers' rooms like gig work which limit the finished product. The WGA wants to regulate the use of AI in writers' rooms, changing material already covered by the Minimum Basic Agreement (MBA). This prevents the source material from adaptions to prevent training AI programs from them. The studios are facing large debt loads and trying to cut down capex and expenses, often at the writers' expense.

The Impact of the WGA Strike

The worst hit is TV shows that require new creative content and scripts, like TV talk shows. Without new scripts, they run re-runs or improvise to a dwindling audience. This hurts networks when commercial advertisers pull their ads. Shows and movies that already have finished scripts can continue production. However, it's the on-site script changes can't be made. Streaming services that get their money from memberships may be okay initially, but as their fresh content thins out, it could affect memberships.

Ad-supported tiers may be impacted. Warnermedia's HBO has many series shows on hold, including The Last of Us, The Penguin (Batman spinoff), Duster, Andor, Knight of Seven Kingdoms (Game of Thrones spinoff) and Hacks. Disney has had to relay production for its TV shows like The Big Bang Theory and Modern Family. Netflix had to delay production for The Witcher, Stranger Things Season 5 and The Crown. Comcast has delayed The Voice, Saturday Night Live, and The Tonight Show production.

The Nuclear Event

The Directors Guild of America (DGA) reached a tentative agreement with the AMPTP on June 3, 2023. The agreement is out for a vote with its members. However, the DGA is widely known for supporting the WGA. The Screen Actors Guild – American Federation of Television and Radio Artists (SAG-AFTRA) is the big union representing 160,000 actors, dancers, broadcasters, journalists, singers, recording artists, stunt performers, voiceover artists and other media professionals.

Their contract expires on June 30, 2023, making them the subsequent union to strike if an agreement isn't reached before then. SAG-AFTRA members are aligned with the WGA and have authorized a strike (98% of members agreed) if the negotiations fail to produce satisfactory results. The last SAG strike lasted 100 days in 2000, causing numerous delays, disruptions and cancellations of shows and movies, and layoffs costing the industry billions in losses.

Greedy Studios?

In a CNN (owned by WBD) interview, WGA board member Adam Conover stated, “The thousands of writers on strike are asking for roughly the same amount that Warner Brothers Discovery CEO David Zaslav took home last year alone.” He may have been referring to Zaslav’s 2021 compensation of $246 million tied to the merger between Discovery and Warnermedia. However, that is primarily options that vest at higher stock price levels over time.

It likely hasn't since WBD shares are in the proverbial "toilet." Zaslav's total compensation in 2022 was $39.3 million, comprised of a $3 million salary, $12 million in stock, $1.4 million in options and $21.8 million in non-equity incentive plan compensation (cash). His bonuses moving forward are also tied to free cash flow, which may be one of the motivations behind the $3.5 billion in content write-downs.

Warner Bros. Discovery analyst ratings and price targets are on MarketBeat.

Weekly Ascending Triangle

The weekly candlestick chart on WBD illustrates an ascending triangle comprised of a flat-top upper trendline and ascending trendline. The ascending trendline commenced in December 2022 after bottoming at $8.84 and triggering a weekly market structure low (MSL breakout through the $11.39 trigger.

WBD staged a rally to the flat-top trendline of $16.34 in February 2023 before falling to the ascending triangle trendline at $11.63 in May 2023 on the WGA strike commencement. The ascending triangle almost broke when it fell to $10.90, but shares rebounded swiftly back into the triangle range when it bounced through $12.36 in June 2023.

The weekly stochastic is attempting to bounce up through the 20-band. Pullback support levels are $12.36, $11.39 weekly MSL trigger, $10.90 and $10.20.

Should you invest $1,000 in Warner Bros. Discovery right now?

Before you consider Warner Bros. Discovery, you'll want to hear this.

MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on... and Warner Bros. Discovery wasn't on the list.

While Warner Bros. Discovery currently has a "Moderate Buy" rating among analysts, top-rated analysts believe these five stocks are better buys.

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Companies Mentioned in This Article

CompanyMarketRank™Current PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Warner Bros. Discovery (WBD)
2.3453 of 5 stars
$8.42+0.2%N/A-6.58Moderate Buy$14.24
Comcast (CMCSA)
4.961 of 5 stars
$40.24flat3.08%10.82Moderate Buy$49.74
Crown (CCK)
4.8092 of 5 stars
$78.71+1.3%1.27%20.93Moderate Buy$99.21
Netflix (NFLX)
4.7561 of 5 stars
$554.31-0.1%N/A38.47Moderate Buy$630.58
Paramount Global (PARAP)
0 of 5 stars
$13.74+1.3%6.99%N/AN/A
Paramount Global (PARA)
3.7956 of 5 stars
$12.18-2.1%1.64%-11.94Reduce$13.79
Paramount Global (PARAA)
1.4302 of 5 stars
22.61-0.9%0.88%-22.17BuyN/A
Amazon.com (AMZN)
4.8208 of 5 stars
$175.62+0.6%N/A60.56Buy$202.80
Compare These Stocks  Add These Stocks to My Watchlist 

Jea Yu

About Jea Yu

  • JeaYu21@gmail.com

Contributing Author

Trading Strategies

Experience

Jea Yu has been a contributing writer for MarketBeat since 2018.

Areas of Expertise

Equities, options, ETFs and futures; fundamental, qualitative, quantitative and technical analysis and pattern identification; active and swing trading; trading systems and methodology development

Education

Bachelor of Arts, University of Maryland, College Park

Past Experience

U.S. equity markets trader, writer and analyst for over 25 years. Published four books by publishers McGraw-Hill, John Wiley & Sons, Marketplace Books and Bloomberg Press. Speaker at various expos and seminars and has been quoted and featured in USA Today, The Wall Street Journal, Traders Magazine, The Financial Times and various trade publications, including Stocks & Commodities, Active Trader and Online Investor.


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