# Warner Bros. Discovery, Inc. (WBD): Business, Risks and Management's Discussion, Second Quarter 2026 Warner Bros. Discovery reports on a calendar year, so the second quarter of 2026 is the three months ended June 30, 2026. All amounts are in U.S. dollars as reported. The Business, Risk and full-year MD&A sections come from the Annual Report on Form 10-K for the fiscal year ended December 31, 2025 (accession 0001437107-26-000020, filed February 27, 2026). The current-quarter discussion comes from the Form 10-Q for the quarter ended June 30, 2026 (accession 0001437107-26-000075, filed August 6, 2026) and the second-quarter earnings release and shareholder letter furnished on Form 8-K the same day (accession 0001437107-26-000072). On October 6, 2026, after the quarter covered here, Skydance Corporation (formerly Paramount Skydance Corporation) completed its all-cash acquisition of the company. WBD is now a wholly owned subsidiary of Skydance, and WBD asked Nasdaq to delist its common stock (see Subsequent events). The 10-K and 10-Q below were written while the company was still independent and publicly traded. ## Business *Source: FY2025 Form 10-K, accession 0001437107-26-000020 (Item 1, Item 7 and the Streaming subscriber disclosures).* Warner Bros. Discovery makes and sells film, television, news, sports and games content, and distributes it through its own streaming services, its cable and international television networks, movie theaters and third-party licensees. Its brands include HBO and HBO Max, Warner Bros. Pictures, New Line Cinema, DC Studios, Warner Bros. Television, Warner Bros. Games, CNN, TNT Sports, Discovery Channel, TNT, TBS, HGTV, Food Network, TLC, Adult Swim and Turner Classic Movies. It describes itself as home to one of the largest collections of owned content in the world. The company earns money in four ways: - **Distribution revenue**: fees paid by cable, satellite, telecom and digital distributors to carry its networks, plus subscription fees for its streaming services. This was $19.26 billion of 2025's $37.30 billion total revenue. - **Advertising revenue**: ads sold on its networks and digital platforms, $7.31 billion in 2025. - **Content revenue**: theatrical film releases, licensing of films and TV programs to other networks and streamers, home entertainment, console and mobile games, sports-rights sublicensing and character and brand licensing, $9.65 billion in 2025. - **Other revenue**: mainly studio tours and production services, $1.08 billion in 2025. At December 31, 2025, the company had about 35,500 employees, 48% of them in the U.S. **Segments.** The company reported three segments in 2025: - **Streaming**: HBO Max, discovery+, the HBO premium pay-TV service and certain premium sports streaming products. Revenue was $10.88 billion in 2025, up 5%. Distribution was 87% of segment revenue, advertising 9% and content 4%. The company counted 131.6 million streaming subscribers at December 31, 2025, against 116.9 million a year earlier: 59.2 million domestic (the U.S. and Canada) and 72.4 million international. HBO Max reached more than 100 markets in 2025, launched in Germany and Italy in January 2026, and was scheduled to launch in the UK in March 2026. Global average revenue per user fell 11% ex-FX to $6.92 a month ($10.79 domestic, $3.80 international) because of broader wholesale distribution of the HBO Max Basic with Ads tier, a domestic wholesale deal renewal in the second quarter of 2025 and growth in lower-priced international markets. - **Studios**: Warner Bros. Motion Picture Group (Warner Bros. Pictures, New Line Cinema, Warner Bros. Pictures Animation), DC Studios, Warner Bros. Television Group, content licensing and sales, home entertainment, consumer products, themed experiences (studio tours and Harry Potter, DC and other location-based attractions) and Warner Bros. Games. Revenue was $12.62 billion in 2025, 93% content and 7% other. The company says it was the first studio to open seven consecutive films above $40 million at the domestic box office, with 2025 releases including *A Minecraft Movie*, *Sinners*, *Superman*, *Weapons* and *One Battle After Another*. In June 2025, Warner Bros. Games narrowed its focus to four franchises: Harry Potter, Game of Thrones, DC and Mortal Kombat. - **Global Linear Networks**: U.S. entertainment, lifestyle and news networks (TNT, TBS, TLC, Discovery, HGTV, Food Network, OWN, Adult Swim, CNN), international networks, and TNT Sports and Eurosport. Sports rights include the NCAA men's basketball tournament (shared with CBS through 2032), the College Football Playoff, MLB, the NHL, NASCAR, Roland-Garros and, in Europe, the 2026–2032 Olympic Games, UEFA club competitions and the Premier League in certain markets. Revenue was $17.66 billion in 2025, down 12% as reported. Distribution was 55% of segment revenue, advertising 36%, content 7% and other 2%. Each segment licenses content to the others at market value, and those transactions are eliminated on consolidation. Corporate holds executive and support functions, nearly all share-based compensation, and transaction costs. **How the company arrived at its 2026 position.** In June 2025, WBD announced a plan to split into two public companies, Warner Bros. (Streaming and Studios) and Discovery Global (Global Linear Networks), and that month drew a $17 billion secured bridge loan to fund tender offers for its notes ahead of the split. In October 2025 the board widened its review to include a sale of the whole company. On January 19, 2026, WBD signed an amended and restated agreement under which Netflix would have acquired the Streaming and Studios businesses after Discovery Global was spun off. Paramount Skydance Corporation (PSKY) had launched a competing tender offer. On February 27, 2026, the board decided PSKY's offer was superior. WBD terminated the Netflix agreement, and PSKY paid Netflix the $2.8 billion termination fee on WBD's behalf. WBD then signed an agreement to be acquired in full by PSKY for $31.00 per share in cash, plus a "ticking fee" of $0.00277778 per share for each day after September 30, 2026 until closing. Larry J. Ellison and an affiliated trust guaranteed $45.72 billion of the merger consideration. If the deal had been terminated in certain circumstances, WBD would have owed PSKY a $3.0 billion fee plus reimbursement of the Netflix fee and of up to $1,528 million of note-related payments. PSKY would have owed WBD $7.0 billion in other circumstances. ## Risk factors *Source: FY2025 Form 10-K, accession 0001437107-26-000020 (Item 1A). The June 30, 2026 Form 10-Q (accession 0001437107-26-000075) refers back to these risk factors without adding new ones. Several of the merger risks below were overtaken when the merger closed on October 6, 2026.* **Merger and deal risk** - **Completion risk.** The PSKY merger needed stockholder approval, which came on April 23, 2026, plus regulatory clearances and the absence of any court order blocking it. In July 2026, twelve state attorneys general and the Writers Guild of America sued to block the deal under Section 7 of the Clayton Act, and a court issued a temporary restraining order against closing (see Subsequent events). - **Cost of failure.** If the deal had been terminated in specified circumstances, WBD could have owed PSKY a $3.0 billion termination fee, the $2.8 billion Netflix fee (carried in accrued liabilities at June 30, 2026) and up to $1,528 million connected with its noteholder obligations. - **Pendency restrictions.** While the deal was pending, the agreement limited WBD's ability to pursue other strategic transactions and significant financings without PSKY's consent. Uncertainty also weighed on employee retention and on relationships with distributors, advertisers and talent. **Business and industry risk** - **Linear decline.** Cord-cutting and audience fragmentation are shrinking the traditional pay-TV bundle. Domestic linear subscribers fell 9% in 2025 and 10% year over year in the first half of 2026. The company expects these declines to continue and possibly accelerate, pulling down both affiliate fees and advertising. - **Advertising pressure.** Advertising revenue depends on audience size and on the economy. Rivals' ad-supported streaming tiers and free ad-supported TV have increased the supply of digital ad inventory, which limits pricing on both linear and streaming ads. Domestic linear network audiences fell 25% in 2025. Audience measurement still misses some streaming and digital viewing. - **Hit-driven content.** Films, series and games require large upfront investment before anyone knows whether audiences will respond. One underperforming event film can significantly reduce Studios results. - **Streaming competition and retention.** HBO Max and discovery+ compete in a crowded market. Growth depends on pricing, content, bundling partners, wholesale arrangements with distributors, and access to third-party platforms, some of which are owned by competitors. - **Distribution renewals.** Carriage and licensing agreements have limited terms. As distributors consolidate they gain bargaining power, and a failed renewal can mean a blackout. Some agreements contain most-favored-nation clauses. - **Sports rights.** Competition is pushing rights costs up, and losing a league can sharply reduce distribution leverage and revenue. The absence of the NBA in 2026 cut second-quarter Global Linear Networks advertising revenue by $414 million while lowering costs by $760 million. - **Labor.** Strikes such as the 2023 WGA and SAG-AFTRA strikes delayed production and releases and materially affected results. - **Impairments.** Goodwill and intangibles remain large: $25.86 billion of goodwill and $25.92 billion of intangibles at June 30, 2026. The company recorded a $9.1 billion goodwill impairment on Global Linear Networks in 2024 and continues to monitor the linear business, affiliate renewals, ad softness and streaming execution for impairment triggers. - **Technology infrastructure.** Satellite, cloud or connectivity outages could interrupt program delivery. **Financial and capital-structure risk** - **Leverage and secured debt.** Debt was $32.57 billion at December 31, 2025, including the $15.0 billion secured bridge loan. In 2025, S&P, Moody's and Fitch downgraded certain of the company's ratings, citing the linear business, leverage, increased secured debt and the separation plan. Covenants restrict asset sales, liens, additional debt and dividends, and the revolving credit facility requires minimum interest coverage of 3.00 to 1.00 and maximum leverage of 4.50 to 1.00. - **Refinancing risk.** The 10-K flagged the risk of being unable to refinance the bridge loan on acceptable terms. That risk was resolved in June 2026 with a new $13.0 billion and €1.717 billion first-lien term loan package (see Current quarter). - **Holding-company cash access.** WBD depends on cash from its subsidiaries and planned a one-time repatriation of some foreign cash in 2026. - **Restructuring and joint-venture risk.** The split-related restructuring and joint ventures with shared control may not deliver their intended benefits. **Legal, regulatory and international risk** - **Regulation.** FCC, privacy and children's-safety rules apply in the U.S., and foreign governments increasingly regulate streaming services. Content quotas and investment obligations in some markets can raise costs. - **Foreign exchange and tax.** Exposure is concentrated in Europe and Latin America. The OECD Pillar Two global minimum tax applies, and reserves for unrecognized tax benefits were $2.39 billion at June 30, 2026, plus $935 million of accrued interest and penalties. - **Piracy and AI.** Piracy and generative AI threaten the value of the intellectual property, and the law on AI and copyright is unsettled. - **Cybersecurity.** The company's systems and those of its service providers have been targeted and in some cases breached. High-profile sports and news coverage increases the exposure. - **Litigation.** The company faces patent, antitrust, employment and stockholder litigation. One example is the Nokia streaming-video patent dispute, in which a UK court in June 2026 required an interim license payment, with trial scheduled for late 2026. - **Multiemployer pension plans.** Some of the union plans WBD contributes to are underfunded, so withdrawal could trigger liabilities. ## Management's discussion: fiscal year 2025 *Source: FY2025 Form 10-K, accession 0001437107-26-000020 (Item 7). Percentage changes are ex-FX (constant currency) unless marked as reported.* 2025 was a year of falling revenue but much better profits after 2024's large impairments. Revenue fell 5% to $37.30 billion (2024: $39.32 billion). Operating income was $738 million, against a $10.03 billion operating loss in 2024 that included a $9.1 billion goodwill impairment. Net income available to WBD was $727 million, compared with a $11.31 billion loss. Net income was helped by a $2.95 billion gain on extinguishment of debt from the June 2025 tender offers, which retired $17.7 billion of notes. Total Adjusted EBITDA (non-GAAP) declined 3% to $8.74 billion. **Revenue drivers.** - **Distribution** fell 2%. A 9% decline in domestic linear subscribers and the second-quarter domestic wholesale streaming renewal outweighed a 13% increase in streaming subscribers and a 3% rise in domestic affiliate rates. - **Advertising** fell 11% because domestic linear network audiences dropped 25%. Growth in HBO Max's domestic ad-supported tier partly offset the decline. - **Content** fell 7%. The 2024 comparison included $576 million from sublicensing Olympic sports rights in Europe, and 2025 had fewer TV deliveries and lower games revenue. Theatrical revenue rose. **Costs.** - **Costs of revenues** fell 9%. The 2024 Olympics had cost $664 million, 2024 included $384 million of games impairments, and purchase-accounting content amortization was lower. Spending to launch HBO Max internationally partly offset the decline. - **Depreciation and amortization** fell 19% as WarnerMedia-related intangibles, amortized on an accelerated schedule, wound down. - **Interest expense** rose $68 million because of bridge-loan costs. - **Income tax expense** was $890 million, a 54% effective rate. **Segments.** - **Streaming** Adjusted EBITDA rose $693 million to $1.37 billion (2024: $677 million) on revenue up 5% to $10.88 billion. Distribution revenue grew 5% and advertising 20% as the ad-supported tier expanded. Content revenue fell 10% on lower third-party licensing as HBO Max launched in new international markets. Costs of revenues fell 1% and SG&A fell 4% on lower marketing. - **Studios** Adjusted EBITDA rose 52% (54% reported) to $2.55 billion on revenue up 8% to $12.62 billion. Theatrical revenue rose 15%, led by *A Minecraft Movie*, *Superman*, *F1*, *The Conjuring: Last Rites*, *Sinners*, *Final Destination Bloodlines* and *Weapons*. Television revenue rose 9% on higher licensing to WBD's own platforms, reflecting the timing of renewals. Games revenue fell 32%. - **Global Linear Networks** Adjusted EBITDA fell 21% to $6.41 billion on revenue down 13% to $17.66 billion. Distribution fell 8%, advertising 14% and content 35%, the last because of the 2024 Olympic sublicensing comparison. Costs of revenues fell 8%. - **Corporate** Adjusted EBITDA improved 15%, to a cost of $1.10 billion, helped by office consolidations and the release of non-income tax reserves. **Cash and balance sheet.** Cash from operations was $4.32 billion (2024: $5.38 billion). Capital expenditures were $1.23 billion, and cash taxes rose to $1.93 billion. During the year the company repurchased or repaid $23.48 billion of senior notes, repaid $2.0 billion of the bridge loan, and raised $601 million by contributing 70% of its music catalog to a joint venture with Cutting Edge Group. At year-end it had $4.57 billion of cash, $32.85 billion of debt principal (the $15.0 billion bridge plus $17.85 billion of senior notes; $32.57 billion carrying value) and an undrawn $4.0 billion revolving credit facility. It made no share repurchases in 2025 or 2024. ## Current quarter: second quarter 2026 *Source: Form 10-Q for the quarter ended June 30, 2026, accession 0001437107-26-000075 (financial statements, Notes 1, 8, 15 and 16, Item 2). Three-month cash flow, free cash flow, net debt and outlook figures come from the August 6, 2026 earnings release and shareholder letter (Form 8-K, accession 0001437107-26-000072, Exhibits 99.1 and 99.2). The first-quarter subscriber figures come from the May 6, 2026 shareholder letter (Form 8-K, accession 0001437107-26-000055, Exhibit 99.2). Percentage changes are ex-FX unless marked as reported.* The quarter shows the business in transition. Streaming kept growing, while Studios faced a weak film slate against a very strong 2025 comparison and the linear networks lost the NBA. Revenue fell 11% as reported (12% ex-FX) to $8.72 billion from $9.81 billion. Operating income was $237 million, against a $185 million operating loss a year earlier. Net income available to WBD fell to $149 million ($0.06 per diluted share) from $1.58 billion ($0.63). The prior-year quarter included a $2.96 billion gain on extinguishment of debt, while this quarter had a $433 million income tax benefit. Total Adjusted EBITDA (non-GAAP) was $1.88 billion, down 6% ex-FX from $1.95 billion. **By revenue type.** Distribution rose 1% to $4.95 billion, as streaming growth slightly outweighed a 10% decline in domestic linear subscribers. Advertising fell 22% to $1.72 billion. The absence of the NBA took 20 points off the growth rate, and domestic network audiences fell 17%. Content revenue fell 26% to $1.83 billion as theatrical revenue dropped 46%. Costs of revenues fell 23%, mainly because of lower sports costs and lower theatrical content expense. SG&A rose 3% on transaction costs and marketing. **Segments.** - **Streaming**: revenue rose 10% to $3.08 billion, the segment's first quarter above $3 billion. Distribution grew 11% and advertising 8%, even though the absence of the NBA cut 16 points from advertising growth. International streaming advertising rose 73% after HBO Max launched in Germany, Italy, the UK and Ireland. Adjusted EBITDA rose 63% ex-FX (75% reported) to $512 million from $293 million, a margin of nearly 17%. About 40% of global HBO Max subscribers were on the ad-supported tier at quarter-end. In May, the company said it had beaten its guidance of more than 140 million global streaming subscribers at the end of the first quarter and was on track to pass 150 million by the end of 2026. The second-quarter filings do not give a subscriber count. - **Studios**: revenue fell 39% to $2.33 billion and Adjusted EBITDA fell 89% to $96 million from $863 million. Theatrical revenue fell 46% against the prior-year run of *A Minecraft Movie*, *Sinners* and *Final Destination Bloodlines*, and the quarter also carried film impairments. TV revenue fell 45% on the timing of licensing to WBD's own platforms. Games revenue rose 45% on *LEGO Batman: Legacy of the Dark Knight*. Management acknowledged that some first-half titles fell short at the box office. - **Global Linear Networks**: revenue fell 17% to $3.99 billion. Advertising fell 27%, including a $414 million hit from the absence of the NBA, partly offset by the NCAA Final Four and Championship. Distribution fell 9%, with a 10% subscriber decline only partly offset by 1% higher domestic affiliate rates. The absence of the NBA also lowered costs of revenues by $760 million. Adjusted EBITDA fell 5% to $1.45 billion. International advertising softened in Poland, Germany, the UK and Italy as energy prices rose with the wars in Iran and Ukraine, and the 2026 FIFA World Cup drew audiences away. **First half.** Six-month revenue fell 6% as reported to $17.61 billion. The operating loss was $2.23 billion, and the net loss available to WBD was $2.77 billion ($1.11 per share), largely because the first quarter expensed the $2.8 billion Netflix termination fee. Restructuring and other charges were $317 million, mostly employee retention, consulting and organizational costs tied to the separation plan and the merger. **Cash flow.** Second-quarter cash from operations was $848 million (2025: $983 million), and free cash flow was $572 million (2025: $702 million). The company said free cash flow absorbed about $350 million of separation and transaction-related items. Six-month operating cash flow was $640 million, against $1.54 billion a year earlier, and capital expenditures were $544 million. **Refinancing and debt.** On June 4, 2026, Discovery Global Holdings borrowed $13.0 billion and €1.717 billion of seven-year first-lien term loans. The loans mature June 4, 2033 and are priced at SOFR plus 2.50% and EURIBOR plus 2.50%. Together with cash on hand, the proceeds repaid the $15.0 billion bridge loan in full. Management said the term loans drew nearly $40 billion of investor demand and expects them to cost about 1.5 percentage points a year less than the original bridge structure. The company repaid $250 million of the term loans during the quarter. In May, noteholders consented to amendments that pushed the deadline for a required exchange of senior notes into junior-lien secured notes out to March 4, 2027. Failure to commence or complete that exchange in time would trigger a payment of about $1.5 billion, which PSKY had agreed under the merger terms to fund, up to $1,528 million. The receivables securitization facility was cut to $4.0 billion and extended to June 2027. At June 30, 2026, the company had $3.37 billion of cash, $32.40 billion of debt principal ($14.71 billion of term loans and $17.69 billion of senior notes, with $1.49 billion current) and an undrawn revolver. Management put net debt at about $30 billion and net leverage at 3.4 times. **Outlook.** As of August 6, 2026, management expected: - **Streaming**: year-over-year growth in subscriber-related revenue to accelerate in the second half of 2026 and stay healthy into 2027, with a long-term Adjusted EBITDA margin target above 20%. Marketing would be front-loaded around the Harry Potter series, scheduled to premiere on HBO Max on Christmas Day. - **Studios**: more than $3 billion of Adjusted EBITDA in the medium to long term. Films due in the second half of 2026 included *Dune: Messiah*, *Practical Magic 2*, *Digger* and *The Cat in the Hat*. - **Global Linear Networks**: a high-single-digit improvement in operating expenses for full-year 2026. **Legal developments in the first half of 2026.** Several matters were resolved: - The *Collura* securities class action was dismissed on March 30, 2026, and the related derivative action on June 15, 2026. - A stockholder suit over the merger proxy was voluntarily dismissed with prejudice on April 20, 2026. - PSKY's Delaware suit against the WBD board was dismissed on March 2, 2026. ## Subsequent events *Sources: Form 10-Q, accession 0001437107-26-000075 (Notes 1 and 15, Item 2); Form 8-K dated October 6, 2026, accession 0001193125-26-415055 (Items 1.01, 1.02, 2.01, 3.01, 5.01, 5.02 and 5.03).* **Antitrust challenges to the merger (July–August 2026).** - **The suits.** On July 13, 2026, attorneys general from twelve states sued in the U.S. District Court for the Northern District of California to block the PSKY merger. They alleged it would substantially lessen competition in the distribution of certain theatrical films and in the licensing of basic cable channels. On July 14, the Writers Guild of America West and East filed a parallel suit in the same court over the market for writing services. - **Restraining order.** The court granted a temporary restraining order against closing on July 20 and extended it on July 23 to August 17, 2026. - **Standstill and trial date.** On July 24, PSKY and WBD agreed not to close until the earlier of five days after a merits decision or June 1, 2027. On August 4, the court set a single 12-day trial for March 2–19, 2027, covering both cases. **Merger completed (October 6, 2026).** - **Consideration.** Skydance Corporation (formerly Paramount Skydance Corporation) completed its acquisition of WBD on October 6, 2026, through the merger of its subsidiary Prince Sub Inc. into WBD. Each WBD share was converted into $31.01666668 in cash. That is the $31.00 base price plus six days of ticking consideration, which totaled $41.9 million across all shares. The 8-K puts the aggregate merger consideration at about $78 billion, funded with a combination of equity and debt financing. - **Equity awards.** Vested options and stock units were cashed out. Unvested awards were assumed by Skydance and converted into contingent rights to cash. - **Unexplained gap.** WBD's 8-K does not explain how the July 24 standstill commitment and the pending antitrust cases were resolved before closing. **Debt and guarantees.** At closing, WBD repaid all loans under, and terminated, the June 4, 2026 First Lien Credit Agreement and its October 4, 2024 revolving Credit Agreement. Certain WBD subsidiaries became guarantors of notes Skydance issued under an indenture dated October 5, 2026 (Deutsche Bank Trust Company Americas, trustee). They also became guarantors of Skydance's credit agreement dated April 7, 2026 (Citibank, N.A., administrative agent), as amended on October 6, 2026. **Delisting and deregistration.** WBD asked Nasdaq to halt trading in its common stock before the open on October 6 and to file a Form 25 to delist it. It also said it would delist the 4.302% Senior Notes due 2030 and 4.693% Senior Notes due 2033 issued by Discovery Global Holdings, and that it intended to file a Form 15 to deregister its securities and suspend its SEC reporting obligations. **Board and management.** Thirteen directors, including Samuel A. Di Piazza, Jr. and David M. Zaslav, left the board at the effective time and were replaced by the directors of the merger subsidiary. The company's officers, including Mr. Zaslav and Gunnar Wiedenfels, were replaced by the merger subsidiary's officers. Mr. Zaslav's employment ended on October 6, 2026, and Mr. Wiedenfels, Bruce L. Campbell and Priya Aiyar were to leave on October 16, 2026. The certificate of incorporation and bylaws were amended and restated at closing.