Hollywood’s cable struggles become clearer as write-downs add ‘nails to linear TV’s coffin’
As a seasoned investor with decades of experience under my belt, I’ve seen my fair share of corporate mergers and acquisitions, and the recent takeover of WarnerMedia by Discovery orchestrated by David Zaslav has left me somewhat skeptical. The steep decline in the company’s stock price, coupled with the mounting debt from the $50 billion deal, has raised red flags for many investors.
As someone who has spent decades observing and analyzing the media industry, I must say that Warner Bros. Discovery’s latest financial report was a stark reminder of the challenges facing traditional cable television. Having worked in this field for many years, I have witnessed the steady decline of linear TV as audiences shift towards streaming platforms, and Warner Bros.’ dismal performance is just another data point in this trend. The company’s disappointing results serve as a cautionary tale for all players in the industry, emphasizing the need to adapt and innovate in order to stay relevant in today’s rapidly evolving media landscape. It’s clear that the old model of cable TV is no longer sustainable, and those who fail to recognize this risk being left behind.
In its recent second-quarter financial statement, the company announced that the combined value of its networks such as CNN, TNT, HGTV, Food Network, and Animal Planet, has decreased by approximately $9 billion compared to two years ago. This new evaluation is made as the company gears up to relinquish a significant NBA contract following the next season, an event that has caused some turbulence within the organization led by David Zaslav.
I’ve come to realize, firsthand, how the transition of the entertainment industry towards streaming has its undeniable side effects – often referred to as collateral damage. For years, Warner Bros. Discovery’s channels have been my go-to spots for viewing pleasure, especially during the era when channel surfing was a common pastime. However, it seems that this trend is fading away.
“Two years ago, the market value and circumstances of traditional media companies were considerably distinct from what they are now, as stated by the CEO during a recent discussion with analysts.”
On Thursday, the company’s shares fell 9% to $7.02.
Zaslav along with his team portrayed the issues as a broader, industry-wide adjustment. Just like The Walt Disney Company, NBCUniversal, and Paramount Global, they’ve been grappling with the fall of their cable networks, which were once profitable mainstays. These companies have incurred significant financial losses while investing in streaming platforms to rival Netflix.
On Thursday, Paramount announced to its investors that it would be recording a $6-billion loss due to the significant decrease in value of its cable channel collection, encompassing MTV, BET, Nickelodeon, VH1, and Comedy Central. Additionally, the company plans to cut approximately 2,000 jobs, which equates to 15% of its workforce.
Approximately a dozen years back, household access to networks like ESPN, Nickelodeon, and HGTV surpassed the 100-million mark across the United States. Today, that number has decreased to roughly 65 million homes as viewers are increasingly opting for streaming platforms.
“Ross Benes, a key analyst at Emarketer, stated via email that the financial losses announced by Paramount and Warner Bros Discovery this week serve as more evidence of the decline and eventual demise of traditional TV broadcasting,” or
More recently, struggling Paramount Pictures led to controlling shareholder Shari Redstone arranging a takeover of the company that’s been in her family’s control for 35 years by tech mogul David Ellison.
Next year, the planned sale to Skydance Media, based in Santa Monica and owned by Larry Ellison’s son Ellison, serves as a clear indication that mid-sized media firms might struggle against the financially powerful tech giants. In this instance, Larry Ellison senior, a well-known tech entrepreneur, is providing support for his son’s transaction.
As a film enthusiast, I’ve noticed that some of the recent challenges facing Warner Bros. Discovery – such as the potential loss of the NBA deal – seem to be problems they’ve brought upon themselves.
As a dedicated fan, it seems that I’m not alone in my perspective. On Wednesday, Warner Bros. Discovery’s stock took a dip, but most other media companies managed to hold their ground. Even Disney, who had a tough day following their admission of softness within the theme parks, remained steady. Comcast ended the day with a 2% increase, and Netflix, the undisputed champion in the streaming wars, saw a 3% rise, closing at $630.35.
As a long-term investor who has closely followed the media industry for several years, I can’t help but be concerned about Warner Bros. Discovery’s current predicament. The company’s stock has plummeted by a staggering 40% this year, and much of that fall seems to have been tied to their failure to renew the NBA rights deal for TNT.
TNT has broadcast pro basketball since 1989, a vestige of its Ted Turner days.
Warner Bros. Discovery initiated a legal action against the NBA, seeking a court order compelling the NBA to agree to a deal that Warner Bros. Discovery proposed, mirroring the agreement they have with Amazon. The NBA, who considers the lawsuit baseless, is anticipated to respond by the end of this month.
Since the 2022 takeover of WarnerMedia, orchestrated by Zaslav, the company’s shares have dropped approximately 70%.
In this merger, the larger media company was taken over by Zaslav’s Discovery (Discovery became the acquirer), resulting in a debt burden of over $50 billion.
Since then, the company has had to let go a large number of employees. They’ve reduced funding for various programs, trimmed expenses, and temporarily halted several projects, which included the films “Batgirl” and “Coyote vs. Acme.”
As a cinephile putting my thoughts into words, I must admit that I was initially optimistic about this particular studio’s future prospects. However, after careful analysis and scrutiny, I’ve come to realize that the current trajectory this company is on isn’t sustainable in the long run.
In a report released yesterday, Reif Ehrlich stated that the recent dip in the stock price is following a period of poor performance over the past two years.
In simpler terms, Robert Fishman, an analyst at MoffettNathanson, stated in his report on Thursday that the current poor stock performance suggests investors are pessimistic about any imminent improvement.
There’s concern among investors that Warner Bros. Discovery might struggle to keep their distribution fees during future talks with TV service providers like Comcast and DirecTV, if they don’t have basketball (presumably, the NBA or other popular basketball content) in their lineup.
During a conference call discussing Warner Bros. Discovery’s earnings, Reif Ehrlich inquired if the steps taken by the company to secure additional sports rights, such as NASCAR, Big East college basketball, and the French Open of tennis, were sufficient to bridge the competitive gap.
According to the Chief Financial Officer, Gunnar Wiedenfels, while they are certain their business strategy will prove successful in the long run, they cannot yet predict exactly when this will happen.
“He mentioned the possibility of recovery about a year or a year and a half back,” he stated, “but it hasn’t materialized as expected. Guess that’s just the way things are.”
Zaslav aimed to reassure investors, explaining that he and other top managers regularly convene a weekly “attack meeting,” with everyone fully engaged.
Company leaders highlighted a surge in their streaming sector, encompassing premium network HBO. This segment gained approximately 4 million new subscribers over the past quarter. The head of streaming expressed enthusiasm about the upcoming lineup of content for the team.
Additionally, Zaslav highlighted Warner Bros. Film Studio, implying that the ongoing projects could ignite a revival for the company. While “Dune: Part Two” and “Godzilla vs. Kong: The New Empire” have been successful, other films such as “Furiosa: A Mad Max Saga” have underperformed in the box office.
Over the phone conversation, Zaslav and Wiedenfels highlighted the company’s strides in reducing its outstanding debt, currently standing at a total of $38 billion.
“Zaslav stated that we put in a tremendous amount of effort to improve the condition of our financial reports,” he said. “In our perspective, our debt is a valuable resource.”
However, in a message to investors, analyst Richard Greenfield from Lightshed Partners stated, “Debt isn’t something that brings value; it’s a financial obligation. If Warner Bros. Discovery (WBD) had less debt, they could devote significantly more resources towards producing content.”
As a passionate movie-goer and avid follower of the industry trends, I’ve come across some intriguing insights from analysts like Reif Ehrlich. They propose that our company might want to consider selling off certain assets, perhaps even separating its video game division. This segment has had a challenging quarter due to the underperformance of their “Suicide Squad” game.
Company executives have indicated a willingness to consider sales, but they equally emphasized the significance of preserving the company’s integrity as one entity.
As a cinephile, I’ve been immersed in the Warner Bros. Discovery approach for the last 2½ years, and let me tell you, I’m witnessing the positive impacts of this strategy daily across our film industry.
However, during the second quarter, there was no indication of profit in the company’s financial data. Instead, they reported a significant loss of $10 billion, which is quite an increase compared to their loss of $1.24 billion during the same period last year. The revenue for Warner Bros. Discovery during this quarter amounted to $9.7 billion, representing a 6% decrease from the previous year’s figures for the same quarter.
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2024-08-10 01:27