Warner Bros. Discovery said on Wednesday it was writing down the value of its television assets due to uncertainty about fees from cable and satellite distributors and sports rights renewals, sending its shares down nearly 10% in after-hours trading.
The film and entertainment studio, which owns sports network TNT and streaming service Max, took a $9.1 billion non-cash goodwill write-off in the second quarter. The write-off, which stemmed from a revaluation of assets since the WarnerMedia-Discovery merger, contributed to a $10 billion quarterly net loss.
The media industry has changed significantly over the past two years, impacting valuations and expectations of traditional media companies, and this is reflected in the impairments, CEO David Zaslav said on a conference call with analysts.
Asked whether the company was considering divesting its assets, Chief Financial Officer Gunnar Wiedenfels said on a conference call, “As I’ve said before, don’t be surprised if we become involved in the M&A process that’s open out there.”
As viewers shift from traditional TV to streaming services, advertising revenues and affiliate fees have declined, impacting the profitability of Warner Bros. Discovery’s TV properties. This decline has been exacerbated by the rising cost of acquiring sports rights.
TNT sued the NBA last month after failing to renew its broadcast deal to broadcast National Basketball Association games at a time when live sports have become important to the company as a ratings driver.
Analysts said a loss in the lawsuit would accelerate the decline of the TV business.
“The huge impairment charge from Warner Bros. Discovery is essentially the final nail in the coffin for the traditional linear TV business,” said Bob O’Donnell, principal analyst at Technalysis Research.
Content revenue from Warner Bros. Discovery studios fell 6% as the game “Suicide Squad: Kill the Justice League,” released earlier this year, underperformed compared with last year’s best game, “Hogwarts Legacy.”
“Furiosa: The Mad Max Saga,” the highly anticipated film directed by George Miller, underperformed at the box office after its release in May. The film grossed $67.5 million domestically, according to IMDb’s Box Office Mojo data, but analysts at TD Cowen estimate it cost $168 million to make.
The studio’s shares have fallen by a third so far this year.
not enough
Still, the company’s direct-to-consumer customer base has grown thanks to cheaper ad-supported services and the expansion of its Max streaming service into new markets.
According to data from Visible Alpha, the company had 103.3 million DTC customers worldwide at the end of the third quarter, up from 99.6 million in the January-March period and beating analyst expectations of 101.6 million.
The company said advertising revenue on its direct-to-consumer platform nearly doubled to $240 million, beating Wall Street expectations, driven by increased engagement and solid subscriber growth on its Max streaming platform.
Rival Walt Disney Co said on Wednesday that its entertainment division, which includes streaming businesses Disney+, Hulu and ESPN+, posted its first profit in the April-June quarter.
“Strong streaming subscriber growth is insufficient to compensate for weak fundamentals, the loss of NBA rights, advertising weakness and missed expectations for free cash flow, revenue, EBITDA and earnings,” said Michael Ashley Shulman, chief investment officer at Running Point Capital.
Excluding one-time items such as goodwill, the company’s loss came to 36 cents a share, beating expectations of 22 cents a share, according to LSEG data.
The media giant on Wednesday reported second-quarter revenue of $9.71 billion, well above analyst expectations of $10.07 billion.
