Warner Bros Discovery Sued For Allegedly Lying About HBO Max

Warner Bros Discovery investors are suing the company, claiming it inflated HBO Max subscriber numbers to make the streamer look more profitable.

By Vic Medina | Published

Warner Bros. Discovery is facing a class action lawsuit from investors who claim the newly-formed company lied to its shareholders about the size and success of HBO Max, its signature platform service. The merger, which was expected to create a media conglomerate that would rival any other, has failed miserably in its first year, causing a potential loss of billions, and leaving shareholders angry and seeking answers. According to The Wrap, among the claims in the lawsuit are charges that Warner Bros. lied about the number of HBO Max subscribers it had during the merger talks, as the service attempted to challenge other streaming services like Netflix, Disney+, and Amazon Prime Video.

The lawsuit claims that Warner Bros. inflated the number of HBO Max subscribers it had by as many as ten million, and misled potential shareholders in other areas in order to complete the merger. That could be a violation of the Federal Securities Act, and could affect potentially hundreds of thousands of shareholders, who could all be pulled into the class-action lawsuit. That’s because people who held stock in Discovery before the merger then owned stock in Warner Bros. Discovery afterward, only to find the value of that stock plummet in the months that followed.

The plaintiffs in the lawsuit argue that their investment in the pre-merger Discovery took a severe hit since the merger, and blame Warner Bros.’ inflated HBO Max subscriber numbers for appearing to show the company was in better financial standing than it actually was. Before the merger, Discovery shares were trading at nearly $25 a share. This week, that same share, now renamed Warner Bros. Discovery, is trading at just over $11 a share, with over 700 million shares issued.

The lawsuit states that Warner Bros. Discovery inflated the HBO Max subscriber count by including individuals who received the service for free with their AT&T service. Those individuals not only didn’t have to pay subscriber fees, they may not even be using the service at all.

The class-action lawsuit was filed on behalf of the Collinsville (IL) Police Pension Board, which turned in their Discovery shares in return for shares in the post-merger Warner Bros. Discovery. With those shares having now lost over half of their value, the Pension Board wants restitution from the company. Because the case is a class-action motion, anyone who bought Warner Bros. Discovery stock since the merger may be able to join in the lawsuit, potentially adding hundreds of thousands of plaintiffs.

batgirl dc canceled
Leslie Grace, of the canceled Batgirl

Among the defendants named in the lawsuit are Warner Bros. Discovery CEO David Zaslav and CFO Gunnar Wiedenfels. Zaslav has made headlines this year for his many controversial decisions regarding movies and TV series the company makes, particularly by cancelling movies like Batgirl for a tax write-off, despite the film being in production and near completion. One could argue that he, and not inflated subscriber numbers, are behind the stock drop in the company.

HBO Max stumbled out of the gate upon its launch in May of 2020, as it was not readily available as a stand-alone streaming service on platforms like Roku and Amazon Fire. AT&T and the platforms could not come to an agreement on profit sharing and fees to carry the HBO Max app, and the standoff lasted until December of that year, when an agreement was finally struck on the eve of the release of Wonder Woman 1984 on the service. The film, which premiered on the app the same day in premiered in theaters, helped drive subscriber growth and hastened the Warner Bros. Discovery merger discussions, which began the following year.

In order to beef up its subscriber base and become more profitable, HBO Max recently announced a cheaper, ad-supported version of the service, which they hope brings in more revenue to Warner Bros. Discovery and makes the service more appealing to Netflix and Disney+ subscribers. The initial merger plan was announced in May of 2021, and became official on April 8, 2022.