Warner Bros. Discovery released a band-aid this week, giving an alarming glimpse into the falling value of the cable TV industry.
In its second-quarter earnings report, the company said its chains, including CNN, TNT, HGTV, Food Network and Animal Planet, were $9 billion less than just two years ago. The new valuation comes as the company prepares to lose its key contract. with the NBA after next season, an update that has shaken the company led by David Zaslav.
This large depreciation highlighted the collateral damage of the entertainment industry’s shift to streaming. Warner Bros. Discovery channels have long been destinations for viewers, especially in an earlier era of channel searching. But nothing more.
“It’s fair to say that even two years ago, the valuations and stock market conditions that prevailed for traditional media corporations were very different than they are today,” Zaslav, the company’s chief executive, said on a call with analysts on Wednesday.
On Thursday, the company’s shares fell 9% to $7. 02.
Zaslav and his lieutenants defined the riots as part of an industry-wide reckoning. Walt Disney Co. , NBCUniversal and Paramount Global are also struggling to manage the decline of their cable channels, which have traditionally generated higher profit margins. Companies have lost billions of dollars creating streaming to compete with Netflix.
Paramount told investors on Thursday that it was taking a $6 billion impairment rate to account for the sharp drop in its portfolio of cable channels, which includes MTV, BET, Nickelodeon, VH1 and Comedy Central. It will also lay off 15% of its staff, or about 2,000 people.
A dozen years ago, channels like ESPN, Nickelodeon, and HGTV were available in more than a hundred million American homes. That number has dwindled to around 65 million households, as audiences turn to streaming options.
“Paramount and Warner Bros. Discovery’s writedowns this week add nails to the coffin of linear television,” Ross Benes, senior analyst at Emarketer, said in an emailed statement.
Paramount’s troubles recently led majority shareholder Shari Redstone to orchestrate the sale of the company her family has controlled for 35 years to tech scion David Ellison.
The upcoming sale to Santa Monica-based Ellison’s Skydance Media, which is expected to close next year, is a stark admission that mid-sized media corporations would arguably be too small to compete with deep-pocketed tech giants. Ellison’s father, generation-of-the-art entrepreneur Larry Ellison, supports his son’s deal.
Analysts said part of Warner Bros. ‘s discovery — the expected loss of the NBA deal — was self-inflicted.
Investors seem to share this view. While Warner Bros. Discovery fell on Wednesday, the other media corporations largely held their value. Disney, which went through a rough patch on Wednesday after acknowledging weakness in its theme parks, held steady. Comcast closed up 2 percent. And Netflix, the biggest winner in the streaming war, rose 3% to $630. 35.
Warner Bros. Discovery’s inventory is down 40% this year. Much of the drop coincided with the company’s inability to negotiate the renewal of the NBA’s rights deal for TNT. The NBA announced last month that it will instead close deals with Disney’s ESPN, NBCUniversal and Amazon. Main video.
TNT has been broadcasting basketball since 1989, a holdover from the Ted Turner era.
Warner Bros. Discovery sued the NBA, asking for a judgment to force the NBA to accept a settlement submitted through Warner Bros. Discovery that will conform to the Amazon. Se settlement expects the league, which called the lawsuit baseless, to respond later this month.
The company’s shares are down 70% since AT’s acquisition of WarnerMedia
Since the deal, Zaslav’s Discovery swallowed up the largest media company. The merger left the company with more than $50 billion in debt.
Since then, the company has laid off thousands of workers. He has cut spending on shows, tightened budgets and scrapped projects, such as “Batgirl” and “Coyote vs. Snyder. “Coyote. “
Bank of America analyst Jessica Reif Ehrlich, once positive about the company’s potential, wrote that the company is on a sustainable path.
The stock’s decline “is a consequence of poor performance over the past two years,” Reif Ehrlich wrote in a report Thursday.
“Unfortunately, the functionality of the inventory obviously indicates that investors see little optimism that the tide will possibly soon begin to turn,” MoffettNathanson media analyst Robert Fishman wrote in a separate ThursdayArray report.
Investors are concerned that without basketball, Warner Bros. Discovery will not be able to maintain its distribution prices in upcoming contract negotiations with pay-TV providers such as Comcast and DirecTV.
Reif Ehrlich asked on Warner Bros. ‘ earnings call. Finding out whether the steps taken by the company to secure more sports rights, including NASCAR, Big East high school basketball and the Open de France tennis tournament, were “enough to close the deal. ” gap”.
Chief Financial Officer Gunnar Wiedenfels said the company was confident its strategy would eventually pay off, but he didn’t know when.
“We talked about recovery a year ago, a year and a part,” he said. “That didn’t happen. That’s right. “
Zaslav sought to appease investors, saying he and other key executives were “meeting every week to plan an attack, with all the participants. “
Executives highlighted the expansion of its streaming department, which includes the premium channel HBO. The department added nearly four million subscribers in the quarter. The company’s head of streaming said his team is excited about its upcoming programming.
Zaslav also mentioned the Warner Bros. movie studio, suggesting that projects in progress would prompt the company’s turnaround. The company had good luck with “Dune: Part Two” and “Godzilla x Kong: The New Empire,” but other films, including “Furiosa: A Mad Max Saga,” were unlucky.
During the call, Zaslav and Wiedenfels highlighted the company’s ability to pay its debt, which now stands at $38 billion.
“We’ve done a lot of painting to get our balance sheet back in shape,” Zaslav said. “We consider our debt as an asset. “
But Lightshed Partners analyst Richard Greenfield responded in an email to investors: “Debt is a liability, an asset. And if WBD had less debt, they might invest a lot more in content creation.
Reif Ehrlich and other analysts have warned that the company is selling assets, such as the spin-off of its video game division, which had a difficult quarter due to the poor performance of its game “Suicide Squad. “
While corporate executives have hinted that they are willing to make sales, they are also under pressure about the importance of maintaining the integrity of the company.
“Look, we’re operating under the exclusive Warner Bros. Discovery strategy for two and a half years,” Wiedenfels said. “Every day I see evidence throughout the industry of those strategies being applied. “
But the figures for the second quarter do not imply such evidence. The company reported a net loss of $10 billion, compared with a loss of $1. 24 billion in the same period a year earlier. Warner Bros. Discovery generated profits of $9. 7 billion, down 6 percent from the same quarter a year earlier.
Subscribe to accessSite map
Follow
MORE FROM THE L. A. TIMES