Warner Bros. Discovery announced on Wednesday that it had written down the value of its TV assets due to uncertainty about cable and satellite distribution fees and the renewal of sports rights. The company’s shares subsequently lost almost 10 percent in extended trading.
The film and entertainment studio, which owns sports network TNT and streaming service Max, recorded a $9.1 billion non-cash goodwill write-down in the second quarter. The write-down, which reflects a revaluation of the asset since the WarnerMedia-Discovery merger, contributed to a $10 billion net loss for the quarter.
The media landscape has changed significantly over the past two years, affecting the valuations and expectations of traditional media companies, and the current situation is reflected in the write-down, CEO David Zaslav said in a conference call with analysts.
When asked whether the company was considering spinning off assets, CFO Gunnar Wiedenfels said in the call: “We have already said it, it should not surprise you if we participate in the ongoing M&A processes.”
The shift of viewers from traditional television to streaming services has led to a decline in advertising revenue and affiliate fees, impacting the profitability of Warner Bros. Discovery’s television assets. This decline is exacerbated by the rising cost of acquiring sports rights.
TNT failed to renew a broadcast contract for National Basketball Association games at a time when live sports have become critical for companies to drive viewership. The company sued the NBA last month.
A loss in the legal battle would accelerate the decline of the TV business, analysts said.
“The huge impairment at Warner Bros Discovery is essentially the final nail in the coffin of the traditional linear television business,” said Bob O’Donnell, chief analyst at TECHnalysis Research.
Content revenues at Warner Bros Discovery’s studio segment fell 6% as the game “Suicide Squad: Kill the Justice League,” released earlier this year, underperformed last year’s top game “Hogwarts Legacy.”
Director George Miller’s long-awaited film “Furiosa: A Mad Max Saga” underperformed at the box office following its release in May. According to data from IMDb’s Box Office Mojo, the film grossed $67.5 million at the domestic box office, despite having a budget of $168 million, according to analysts at TD Cowen.
The studio’s shares have lost a third of their value this year.
Not enough
Nevertheless, the company’s direct customer base grew thanks to cheaper ad-supported offers and the expansion of the Max streaming service into new markets.
According to data from Visible Alpha, global direct subscribers ended the quarter at 103.3 million, up from 99.6 million subscribers in the January-March period and beating analyst estimates of 101.6 million.
The company said advertising revenue on its direct-to-consumer platforms nearly doubled to $240 million, beating Wall Street expectations due to higher engagement on its streaming platform Max and strong subscriber growth.
The company’s competitor, Walt Disney, announced on Wednesday that its entertainment division, which includes streaming companies Disney+, Hulu and ESPN+, reported a profit for the first time in the fourth quarter of the fiscal year.
“Strong streaming subscriber growth is not enough to offset weakening fundamentals, the loss of NBA broadcast rights, advertising weakness and declines in free cash flow, revenue, EBITDA and earnings,” said Michael Ashley Schulman, chief investment officer of Running Point Capital.
Excluding one-off items such as the goodwill write-off, the company’s loss was 36 cents per share, according to LSEG data, above estimates of 22 cents per share.
The media giant on Wednesday reported second-quarter revenue of $9.71 billion, compared to analysts’ estimates of $10.07 billion.
