Warner Bros. Discovery (WBD) is facing significant financial challenges after failing to secure a renewal of its NBA broadcasting rights, leading to a staggering $9.1 billion impairment charge. This charge reflects the devaluation of WBD’s TV assets and underscores the growing difficulties faced by legacy media companies in a rapidly changing market.
In its second-quarter earnings report, WBD attributed the write-down to several factors, including a decline in market capitalization relative to book value, ongoing weakness in the U.S. linear advertising market, and uncertainty surrounding affiliate agreements and sports rights renewals—particularly the NBA.
During a presentation to investors, WBD CEO David Zaslav acknowledged the shifting landscape of the media industry. “Even two years ago, market valuations and conditions for legacy media companies were very different,” Zaslav remarked. “This impairment aligns our asset values more closely with our future outlook.”
Gunnar Wiedenfels, WBD’s chief financial officer, clarified that the impairment was not triggered by a single event but was instead a comprehensive reassessment of the value of the company’s networks. However, he noted that the ongoing discussions around NBA rights did play a role in the timing of the write-down.
WBD is currently engaged in a legal battle to retain some portion of its long-standing relationship with the NBA. The company is suing the league, with a judge setting an August 23 deadline for the NBA to respond to the complaint. Should the NBA move to dismiss the case, further legal proceedings are expected to unfold over the coming months.
While WBD executives were cautious in discussing the legal situation, Wiedenfels did mention that the NBA remains a “profitable right” for the company. Analysts estimate that losing NBA rights could result in the loss of around $600 million in annual profits, with live games and related programming accounting for approximately 7% of WBD’s EBITDA.
The second quarter proved to be a challenging period for WBD’s cable networks, including TNT, TBS, and truTV. Distribution revenue fell by 9% year-over-year, amounting to a $266 million loss, while advertising revenue dropped 10%, resulting in a $234 million decline. Overall, the networks experienced an 8% decrease in revenue, with total earnings down $486 million compared to the same period last year.
Zaslav described the current situation as a “generational disruption” that requires bold and necessary actions, though he did not provide specific details on what those steps might be. One area that has shown promise for WBD is its direct-to-consumer (DTC) segment, which saw a sequential gain of 3.6 million global and domestic streaming subscribers, bringing the total to 103.3 million. However, despite this growth, DTC revenues dipped by 5% to $2.57 billion.
In an effort to manage its significant debt, WBD has made progress in reducing the $62.4 billion it inherited from its merger two years ago, with current gross debt now standing at $41.4 billion.
Following the earnings report, WBD’s stock price fell from $7.71 to $6.96 in after-hours trading, marking a 72% decline in share value since the merger was completed in April 2022.
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