Warner Bros. Discovery cuts value of TV assets by $9 billion: ‘the final nail in the coffin’

Warner Bros. Discovery said on Wednesday it wrote down the value of its television assets due to uncertainty over fees from cable and satellite distributors and sports rights renewals, sending its shares down nearly 10% 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 charge in the second quarter. That charge, stemming from a revaluation of assets since the merger of WarnerMedia and Discovery, contributed to a net loss of $10 billion for the quarter.

The media landscape has changed significantly in the past two years, affecting valuations and expectations for traditional media companies, and this current situation is reflected in the filing, CEO David Zaslav said on a call with analysts.

Asked if the company was considering writing off assets, CFO Gunnar Wiedenfels said on the phone: “We’ve said before, you shouldn’t be surprised to see us engage in you know, regardless of the M&A processes going on out there.”

The shift of viewers from traditional television to streaming services has led to a decline in advertising revenue and affiliate fees, affecting the profitability of Warner Bros.’s television assets. Discovery. This decline is further compounded by the rising costs of purchasing sports rights.

TNT failed to renew a broadcast deal with National Basketball Association games at a time when live sports have become crucial for companies to increase viewership. The company sued the NBA last month.

Losing the lawsuit would hasten the decline of its television business, analysts said.

“The huge damage fee from Warner Bros. Discovery is essentially the final nail in the coffin of the traditional linear TV business,” said Bob O’Donnell, principal analyst at TECHnalysis Research.

Content revenue at Warner Bros. Discovery’s studio segment fell 6%, as “Suicide Squad: Kill the Justice League,” released earlier this year, underperformed compared to the year’s top game past “Hogwarts Legacy”.

Director George Miller’s much-anticipated Furiosa: A Mad Max Saga did not underperform at the box office after its release in May. According to analysts at TD Cowen, the film earned $67.5 million at the domestic box office, IMDb’s Box Office Mojo data showed, on a reported budget of $168 million.

The studio’s stock has lost a third of its value this year.

It’s not enough

However, the company’s direct-to-consumer customer base grew thanks to cheaper ad-supported offerings and the expansion of the Max streaming service into new markets.

Global direct-to-consumer subscribers at the end of the quarter were 103.3 million, up from 99.6 million subscribers in the January-March period, and beating analysts’ estimates of 101.6 million, according to Visible Alpha data.

Advertising revenue on its direct-to-consumer platforms nearly doubled to $240 million, beating Wall Street expectations, due to higher engagement on its Max streaming platform and strong subscriber growth, the company said.

Rival Walt Disney Company said on Wednesday that its Entertainment unit, including its streaming businesses Disney+, Hulu and ESPN+, posted its first profit in the April-June quarter.

“Strong growth in streaming subscribers is not enough to offset weakening fundamentals, the loss of NBA broadcast rights, advertising weakness and losses in free cash flow, revenue, EBITDA and earnings,” said Michael Ashley Schulman. , chief investment officer at Running. Capital point.

Excluding one-time items such as a goodwill charge, the company’s loss was 36 cents a share, wider than estimates of 22 cents a share, according to LSEG data.

The media giant reported second-quarter revenue of $9.71 billion on Wednesday, compared with analysts’ estimates of $10.07 billion.