Warner Bros. Discovery’s Cable Crisis Results in $9.1 Billion Write-Down

With its failed bid for rights to air National Basketball Association (NBA), Warner bros. Discovery faced a major setback in the past few weeks

The parent company of the industry’s best-known traditional channels CNN, TNT and HBO, Warner Bros. Discovery made an announcement of writing down $9.1 billion of its TV networks. This may be the latest sign of the ongoing free fall of traditional cable. 

The write down is a reflection of the poor performance of the television networks and hence the $9.1 billion charge acts as devaluation of the company’s television networks. 

The $9.1 billion goodwill impairment charge, which is a non-cash, pre-tax amount, followed an asset revaluation that highlighted the disparity between the “fair value” and “book value” of the networks. This adjustment was driven by ongoing weakness in the U.S. linear ad market and uncertainties surrounding affiliate and sports rights renewals, including those for the NBA, two years after WarnerMedia and Discovery’s merger was completed. 

The media business founded by David Zaslav issued an announcement disappointing second-quarter earnings, sending its shares down 10% in after-hours trading on Wall Street. The company’s continuous fight to cut down costs in a way to pay down the debt of $38 billion which was incurred as a result of AT&T’s 2022 acquisition of WarnerMedia.

The report with the write down put the rapid decline of cable television into light. Many viewers and advertisers have now shifted to streaming. The reports from Wall Street turned out to be a major setback for the company. The expected loss of the NBA contract for its TNT and the grappling cost cuts have further added on. 

The $9.7 billion revenue generated by the New York company resulted in a decline of 6% with the same quarter last year. 

Adjusted earnings before interest, taxes, depreciation, and amortization declined 16% to almost $1.8 billion, from $2.1 billion the previous year. The company’s expenses were lesser last year on the programming due to a strike by the Writers Guild of America. The popular video game of Harry Potter known as the “Hogwarts Legacy” was also introduced by the company while this year’s “Suicide Squad” game missed its mark. 

Although the immediate take away was the company’s shocking net loss of $10 billion which also included the $9.1 billion impairment charge from TV networks along with $2.1 billion  “acquisition-related amortization of intangibles and restructuring expenses.”

The executives of the Warner Bros. Discovery told the analysts in a conversation that after a deep review they arrived at a conclusion that the worth of the company’s network was $9 billion less when compared to two years ago. 

Overall, investors do not believe that streaming income will supplant cable earnings. Despite increasing revenue from streaming services, the stock prices of television firms such as Warner Bros. Discovery, and Paramount have continued to plummet. The stock of Discovery settled at $7.71 per share which is down by 68% since their debut in April 2022. It further fell by 8% when the market shut after the earnings announcement by the company. 

Wall Street expected a 22-cent drop in earnings per share (EPS) on $10.1 billion in revenue, according to LSEG analyst consensus data. Warner Bros. Discovery posted a diluted loss per share of $4.07 on $9.7 billion in revenue.

With its failed bid for rights to air National Basketball Association (NBA), Warner bros. Discovery faced a major setback in the past few weeks. The NBA was the backbone of its sports division for decades. 

NBCUniversal, a traditional media rival owned by Comcast, submitted a winning bid for a key NBA contract, making pursuing a comparable TV package unprofitable. 

Warner Bros. Discovery is now locked in a high-stakes litigation with the National Basketball Association, a long-time business partner, over whether it has the rights to match Amazon’s bid for another package of games.