Warner Bros. Discovery, the media conglomerate formed by the merger of Warner Bros. and Discovery in 2022, experienced a significant drop in stock prices after reporting a $9.1 billion write-down on its TV networks. The company also missed analyst estimates on revenue, further contributing to the decline in its shares.
Analysts surveyed by LSEG had expected a loss per share of 22 cents, but Warner Bros. Discovery reported a loss of 36 cents per share. Additionally, the company’s revenue for the quarter was $9.7 billion, falling short of the expected $10.07 billion.
The write-down was a result of the reevaluation of the book value of the TV networks segment, which revealed that the book value exceeded the market value. This disparity is indicative of the ongoing decline of traditional TV networks, as consumers increasingly turn to digital and streaming platforms for their entertainment needs. Advertisers are also following suit, opting to spend their budgets on digital and streaming advertising instead of traditional TV.
While the write-down is significant, Warner Bros. Discovery’s CFO, Gunnar Wiedenfels, emphasized that it reflects the shifting landscape of the media industry. The company is now focusing on growth in its studios and streaming units, recognizing the value shift across business models.
The company has been actively working towards paying down its debt, which primarily stems from the merger. During the second quarter, Warner Bros. Discovery paid down $1.8 billion in debt, bringing its gross debt to $41.4 billion. It currently has $3.6 billion in cash on hand.
Looking ahead, there is uncertainty surrounding future sports rights renewals, including the NBA. Warner Bros. Discovery has sued the NBA, seeking to invoke its matching rights on a package of games earmarked for Amazon’s Prime Video as part of the league’s new media rights deal.
Despite the challenges in the TV networks segment, Warner Bros. Discovery’s streaming business, centered around its platform Max, has shown promising growth. The company added 3.6 million subscribers during the second quarter, bringing the total number of global streaming customers to 103.3 million. The company attributes this growth to international expansion and increased ad spending on streaming. Executives expect the streaming business to continue growing and eventually become profitable.
To further strengthen its position in the streaming market, Warner Bros. Discovery is forming strategic partnerships. It plans to launch an entertainment pairing with Disney’s Disney+ and Hulu, as well as a sports bundle with Disney’s ESPN and Fox this fall.
While direct-to-consumer streaming revenue decreased by 5% due to a lower volume of third-party licensing deals, advertising revenue for streaming saw a significant increase of 99%. This growth was driven by higher domestic engagement on Max and an increase in ad-supported subscribers. Globally, the company’s revenue also increased by 4%, primarily due to the ad tier.
In conclusion, Warner Bros. Discovery’s stock decline and write-down on its TV networks highlight the challenges faced by traditional media companies in the face of the digital revolution. However, the company’s focus on growth in its studios and streaming units, along with strategic partnerships and international expansion, provide hope for a brighter future. The streaming business, in particular, has shown promising growth, with subscriber numbers reaching 103.3 million. By capitalizing on the demand for streaming and advertising revenue, Warner Bros. Discovery aims to navigate the changing media landscape and achieve profitability.
