Warner Bros. Discovery’s failure to secure a renewal with the NBA has already begun to have a disruptive impact on operations, as the company today disclosed that it has taken written down the value of its TV assets to the tune of a massive $9.1 billion goodwill charge.
According to WBD’s second quarter earnings statement, the write-down was “triggered in response to the difference between market capitalization and book value, continued softness in the U.S. linear advertising market, and uncertainty related to affiliate and sports rights renewals, including the NBA.”
Speaking to investors during the company’s afternoon presentation to investors and analysts, CEO David Zaslav acknowledged that the cable networks unit is in a bit of a pickle. “It’s fair to say that even two years ago, market valuations and prevailing conditions for legacy media companies were quite different than they are today,” Zaslav said in his opening remarks. “This impairment acknowledges this and better aligns our carrying values with our future outlook.”
“There is no one factor that is driving this impairment,” WBD chief financial officer Gunnar Wiedenfels said, before adding that the “discussion” around the NBA rights had “come into play as a triggering event.” Wiedenfels went on to characterize the move as a “full reevaluation” of the value of the networks, “not a response to one individual factor.”
WBD is suing the NBA in a bid to retain at least some part of its longstanding association with the league. A judge has given the NBA until August 23 to respond to the complaint; if they move to dismiss—and this would appear to be the most credible option—WBD has until Sept. 20 to return serve. The NBA would then have until Oct. 2 to deliver a subsequent response to that response.
While the WBD execs mostly steered clear of addressing the active legal proceedings, Wiedenfels allowed that the NBA “is a profitable right.” Analysts estimate that some $600 million in annual profits would evaporate once WBD embarks upon its post-NBA future; all told, the live games and studio programming are estimated to account for 7% of the company’s EBITDA.
After Zaslav skirted a query about how the loss of the NBA might impact TNT’s carriage fees, he said WBD remains confident in its position. “We are getting back to work,” Zaslav said. “The judge will decide and then off we’ll go.”
By any measure, the WBD cable networks had a nightmare quarter. Distribution revenue fell 9% to $ 2.68 billion, for a year-to-year loss of $266 million, while ad sales dropped 10% to $2.21 billion. That marked a loss of another $234 million compared to the second quarter of 2023. All told, revenues at TNT, TBS and truTV were off 8% to $5.27 million, which works out to a loss of $486 million in the period.
Zaslav characterized the headwinds as a “generational disruption,” one that requires his team to take “bold, necessary steps.” It is not entirely clear what these steps may entail. One area that has shown promise is the direct-to-consumer segment; a sequential gain of 3.6 million global and domestic streaming customers brought the DTC base up to 103.3 million subscribers. Of these, 52.4 million are based here in the U.S., which marks a slight decline compared to 54 million subs a year ago.
Despite the overall increase in DTC subs, revenues at the segment dipped 5% to $2.57 billion.
WBD also made more progress toward paying down the $62.4 billion in debt it assumed when the merger was completed two years ago; per company reports, the gross debt is now at $41.4 billion.
After closing at $7.71 per share, WBD’s stock price dropped to $6.96 in after-hours trading. Share value has eroded by 72% since the merger closed in April 2022.
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