After traditional media and entertainment giant Warner Bros. Discovery announced its second quarter results, the company's already weak stock price this year has once again been under heavy selling pressure.
Warner Bros. Exploration owns some of the most well-known cable channels, including CNN, HGTV, TNT, and TBS. In 2022, Discovery acquired AT&T for over $40 billion; Warner Media, which was spun off from T, merged to create Warner Bros. Exploration, and these television networks were part of Warner Media's original assets.
However, as users gradually began to cancel cable TV services, this reduced overall ratings and household coverage, resulting in a significant decline in the number of viewers for all these channels.
In its latest financial report, Warner Bros. Exploration reported a loss of 36 cents per share in the second quarter, exceeding the average analyst expectation of a loss of 22 cents; Revenue was $9.7 billion, lower than analysts' expectations of $10.07 billion; In addition, to the surprise of investors, its second quarter performance also included $9.1 billion in non cash goodwill impairment expenses, which were triggered by a reassessment of the book value of its television network business.
In after hours trading on Wednesday, August 7th, Warner Bros. experienced a sharp drop of over 10%; Subsequently, on Thursday (August 8th), it closed down 8.95% to $7.02 per share.
The deterioration of traditional television services
Warner Bros. Exploration has significantly reduced the value of its traditional television networks, such as CNN and TNT, by $9.1 billion, reflecting the rapid deterioration of its traditional television business and endangering companies such as Warner Bros. Exploration that rely heavily on television channels for revenue.
Generally speaking, a highlight of traditional television business is sports live streaming programs, which continue to attract high ratings.
For Warner Bros. Exploration, the rapid decline of its traditional business has intensified in recent weeks, as the company publicly announced a "breakup" with its 40 year partner, the NBA, at the end of last month, triggering a legal dispute.
Previously, Warner Bros. Discovery Channel had been competing with Amazon for NBA broadcasting rights. Eventually, NBA officials reached a new broadcasting rights agreement with Amazon, ending their 40 year partnership with Warner Bros. Discovery Channel.
Warner Bros. Exploration admitted on Wednesday that the losses from the breakdown of the partnership will have a financial impact on the company starting from the 2025-26 season. The impairment of goodwill is due to the difference between market value and book value, the continued weakness of the US television advertising market, and uncertainties related to league and sports copyright renewals, including the NBA
Alternation of old and new
In the constantly disruptive landscape brought about by Netflix's streaming revolution, Warner Bros. Exploration is not the only traditional media giant starting to decline.
The former giant Paramount Global has also begun to stumble, finding it extremely difficult to reposition its business around streaming media. This company's market value has shrunk by 27% since the beginning of this year, and last month it reached a merger agreement with David Ellison's independent film studio Skydance Media.
According to the latest report, Paramount Global has also announced a major layoff plan, cutting approximately 2000 jobs in its US operations to reduce operating costs before merging with Skydance Media.
David Zaslav, CEO of Warner Bros. Exploration, stated during a post market earnings conference call on Wednesday, "The current market valuation and status of traditional media companies are vastly different from two years ago. This impairment recognizes this and makes our book value more aligned with our future prospects
While acknowledging the harsh reality of "difficult traditional business conditions," Zaslav also expressed some positive emotions, stating that the company's Max streaming platform is "doing very, very well" and has "huge room for growth.