Warner Bros. Cooked HBO Max Subscriber Numbers, Misled Shareholders in Discovery Merger, Lawsuit Claims

An Illinois police pension board brought the suit suggesting “hundreds of thousands” of Discovery shareholders were duped

David Zaslav and Gunnar Wiedenfels
Warner Bros. Discovery CEO David Zaslav, left, and CFO Gunnar Wiedenfels. (Getty Images)

Warner Bros. cooked its HBO Max subscriber numbers by as many as 10 million and misled shareholders in other ways that violate the Securities Act to complete its merger with Discovery, according to a class-action lawsuit that claims it could potentially represent “hundreds of thousands” of plaintiffs.

The lawsuit was filed last Friday in New York on behalf of the Collinsville Police Pension Board, an Illinois-based shareholder of Warner Bros. Discovery stock, which it accepted in trade for its pre-merger Class C common Discovery shares. At the time of the merger, Discovery shares were valued at $24.78; as of Tuesday, WBD shares were trading just above $11.

The lawsuit names Warner Bros. Discovery, CEO David Zaslav, and CFO Gunnar Wiedenfels as defendants. WBD did not immediately respond to a request for comment.

The lawsuit says that, among several other “adverse information” being kept hidden, the merging companies overstated the subscriber base for HBO Max:

“WarnerMedia was improvidently concentrating its investments in streaming and ignoring its other business lines … [and] overstated the number of subscribers to HBO Max by as many as 10 million subscribers, by including as subscribers AT&T customers who had received bundled access to HBO Max, but had not signed onto the service.”

More than 700 million shares of WBD were issued to Discovery common and preferred shareholders pursuant to the merger, the lawsuit states, meaning “hundreds of thousands” of people could potentially join the federal securities class-action filed in a New York federal district court.

Discovery and the WarnerMedia division of AT&T announced their merger plans in May 2021, and closed this year on April 8.

The lawsuit says “the Registration Statement and Prospectus and certain of the Defendants’ other public statements, contained untrue statements of material fact or omitted to state material facts required to be stated therein or necessary to make the statements therein not misleading.”

It also said “AT&T was overinvesting in WarnerMedia entertainment content for streaming, without sufficient concern for return on investments … WarnerMedia had a business model to
grow the number of subscribers to its streaming service without regard to cost or profitability.”

The plaintiff, a pension fund to benefit current and former police officers in Collinsville, Illinois, suggests that anyone who purchased WBD on the open market post-merger is qualified to join the lawsuit.

It’s seeking a jury trial for monetary damages, alleging three separate Securities and Exchange Commission violations.