Warner Bros. Discovery Shares Surge 10% with Max-Charter Deal

Warner Bros. Discovery’s stock surged by over 10% on Thursday after the media giant announced a pivotal deal with Charter Communications. This partnership will bring Warner Bros. Discovery’s flagship streaming service, Max, to Charter’s Spectrum cable customers as part of their standard cable packages. The market responded favorably to the news, sending Warner Bros. Discovery shares up 10.3% to close at $7.66, marking a significant rebound from its recent low of $6.94 just the day before.

This rally has offered some respite for Warner Bros. Discovery, whose shares have been on a tumultuous ride. Despite the recent recovery, the stock remains well below its peak from earlier in the year and is far removed from its highs of over $77 in 2021. Nevertheless, the company’s stock has seen an overall rise of 13% in the past month, with the potential to climb higher as this strategic move with Charter begins to pay dividends.

The agreement with Charter Communications marks a crucial step in Warner Bros. Discovery’s strategy to expand the reach of its streaming services. Under the terms of the deal, Spectrum cable customers will gain access to ad-supported versions of both Max and Discovery+ at no additional cost. This will replace the previous $15 per month charge that customers had to pay if they wanted to add Max to their existing cable package. By bundling the streaming service into traditional cable subscriptions, Warner Bros. Discovery aims to attract a broader audience and increase its streaming subscriber base.

The move aligns with a growing industry trend where major cable providers are integrating streaming platforms into their service offerings. Spectrum already offers its customers access to other streaming services, such as Disney+ and Paramount+, through a $65 cable bundle that includes basic tiers of these competitors. By adding Max and Discovery+ to the mix, Warner Bros. Discovery is positioning itself to compete more directly with these rival services while also leveraging the reach of a major cable operator like Charter.

The deal is a welcome positive development for Warner Bros. Discovery, which has faced several challenges in recent months. While the company’s streaming business has shown encouraging growth, adding 3.6 million subscribers in the second quarter to bring its total to 103.3 million, the company remains heavily reliant on its traditional cable TV business, which is in decline. CEO David Zaslav noted at a Goldman Sachs conference that the company expects Max to add six million new subscribers in the latest quarter, a clear signal that Warner Bros. Discovery is betting big on streaming as a core part of its future growth.

However, Warner Bros. Discovery is not without its problems. The company, which was formed through the 2022 merger of Discovery with AT&T-owned Warner, is dealing with several financial and operational headwinds. One of the most pressing concerns is the potential loss of its long-standing media rights partnership with the NBA. The league rejected Warner Bros. Discovery’s $1.8 billion offer to renew the rights for NBA games on its TNT cable network, a blow to the company’s television portfolio. Warner Bros. Discovery has even filed a lawsuit against the NBA, claiming that its offer matched a competing bid from Amazon Prime Video.

The potential loss of the NBA deal, combined with other challenges in its TV business, led the company to take a massive $9.1 billion write-down earlier this year, largely tied to its struggling television networks. The company’s shares hit their lowest point of the year at $6.71 following the announcement of the write-down. This deal with Charter provides a glimmer of hope for the company, as it seeks to shore up its financial position and adapt to the changing media landscape.

The Warner Bros. Discovery-Charter deal is also indicative of broader shifts within the media and telecommunications industries. As consumers increasingly “cut the cord” and move away from traditional cable packages in favor of streaming services, companies like Charter are being forced to adapt. In the second quarter, Charter lost a staggering 393,000 TV subscribers, a significant increase from the 193,000 subscribers it lost in the same period the previous year. This steep decline in subscribers has put pressure on Charter’s video revenue, which dropped by 7.7% year-over-year to $3.9 billion in the second quarter.

The integration of popular streaming platforms like Max and Discovery+ into its cable bundles could help Charter stem some of these losses. By offering these services as part of its standard packages, the company may be able to retain more customers who might otherwise cancel their cable subscriptions in favor of streaming services. This strategy could prove to be a lifeline for Charter as it grapples with the continued trend of cord-cutting.

Despite the optimism surrounding the Charter deal, Warner Bros. Discovery’s stock remains far below its highs from earlier in the year. Shares peaked at $8.18 in July but have since fallen as low as $6.94 before Thursday’s rebound. The company’s stock has also declined sharply since the start of the year, dropping by more than 33% from its January high of $11.60.

This volatility reflects the broader uncertainty surrounding Warner Bros. Discovery’s future. While its streaming business shows promise, the company is still heavily reliant on its traditional TV networks, which face a declining audience. The potential loss of its NBA rights could further erode its television business, adding to the pressure on its stock price. Nevertheless, the Charter deal represents a significant step in the company’s efforts to diversify its revenue streams and capitalize on the growth of streaming.