HBO Max inflated subscriber numbers and misled investors, lawsuit says

Warner Bros. increased HBO Max’s subscriber base by about 10 million and misled investors in ways that violate the Security Act to force completion of the Discovery merger, according to a class-action suit that claims it could potentially represent “hundreds thousands” of the complainants.

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

The lawsuit names Warner Bros. Discovery, CEO David Zaslav and CFO Gunnar Wiedenfels as defendants. WBD has not commented on the matter.

The lawsuit says that, among several other “adverse information” kept under wraps, the merger companies exaggerated the HBO Max subscriber base:

WarnerMedia was focusing its investments on streaming and ignoring its other lines of business… [e] exaggerated the number of HBO Max subscribers by up to 10 million subscribers, including as AT&T customers who received access to HBO Max through bundles but did not actually subscribe to the service.

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

The suit says that “the Registration Statement and Prospectus and certain other public statements by Defendants contained false statements of material fact or omitted to state material facts that should have been stated or necessary to make the statements non-misleading.”

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The complaint also says that “AT&T was overinvesting in WarnerMedia’s entertainment content for streaming, without enough concern for return on investment…WarnerMedia had a business model for
increase the number of subscribers to its streaming service without regard to cost or profitability.”

It is worth remembering that since the merger took place, David Zaslav announced the cancellation of several projects that were destined for HBO Max, including the Batgirl movie and several animations. In addition, recent rumors indicated that a new merger should take place in the future, between Warner Bros. Discovery and NBCUbiversal.

For now, we can only wait to find out how all these rumors and accusations will play out.

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