A police pension board in Illinois has filed a federal lawsuit against Warner Bros Discovery and two executives on allegations that the company misrepresented certain information about subscribers of its flagship streaming service, HBO Max.
The lawsuit, filed last week in a New York-area federal court, is seeking class-action status on behalf of investors who swapped shares in Discovery in exchange for Warner Bros Discovery common stock after the two companies merged earlier this year.
The lawsuit claims the company had “adverse information” about the health of WarnerMedia, the pre-merger Warner Bros side of the business, before shareholders approved a measure that ultimately led to the merger in April.
According to the lawsuit, executives at WarnerMedia and Discovery knew that HBO Max was suffering from unusually high churn — the rate at which a subscriber cancels their service — which made HBO Max as a product “not viable” until the churn rate was addressed and reversed.
The lawsuit said some investors were misled by WarnerMedia and Discovery executives when they were presented with information that counted around 10 million HBO Max viewers as subscribers, even though those customers received HBO Max for free as part of their AT&T service. (At the time, AT&T was the owner of WarnerMedia.)
One day after the merger was completed, Warner Bros Discovery was trading at around $25 a share. That price has since decreased to around $11 per share. The lawsuit said the share price reflects the adverse conditions at HBO Max that financial investors became aware of in the months since the merger.
The lawsuit names Warner Bros Discovery Chief Executive Officer David Zaslav and its Chief Financial Officer Gunnar Wiedenfels as defendants. No one from Warner Bros Discovery has addressed the lawsuit as of Tuesday afternoon, according to a court docket reviewed by The Desk.
The plaintiffs are seeking class-action status on behalf of certain Discovery shareholders prior to the WarnerMedia merger.