Here’s a more concrete way to acknowledge this: WBD just took a $9 billion accounting loss because it concluded its aging TV assets aren’t worth nearly as much as it thought — perhaps because they won’t be able to show NBA games after next season. For comparison, WBD’s entire market cap is around $18 billion.
Investors reacted to the news by pushing the company’s share price down by more than 8%.
OK. And what happens next?
If you or I buy something and it turns out we greatly overestimated its value, bad things can happen.
The problem with huge write-downs in the American economy, however, is that while they represent an admission of failure, Wall Street tends to react quite cautiously when they happen.
That’s mainly because they’re not a surprise. The market has already decided that it won’t work, and that’s already reflected in the stock price. And that’s exactly what’s happening with WBD – the stock has been on a downward spiral for over two years of its existence.
WBD CEO David Zaslav is promising Wall Street that everything will be OK and its digital future looks great. The problem is that its traditional TV networks – like TNT, TBS and TLC – are in decline but still generate significant profits, making it difficult to do anything with them either way.
According to him, “conditions in the legacy business are tough.”
This is one of the big problems with the breakup plan the company tried last month: Who wants to own the part of the business that isn’t working?
And as it turns out, WBD has also realised that this plan won’t work and has popped its trial balloon this week. The new, new plan, according to the Financial Times, is to sell off smaller parts of the company. Perhaps a Polish broadcasting company or part of the games business.
But it’s important to remember that Zaslav’s other plan is consolidation: He says he wants to buy things, even though many people think he’ll be the one getting bought out. Today’s news has made his company significantly more affordable to a potential buyer.
