Warner Bros. Discovery recently announced a significant non-cash impairment charge of $9.1 billion at its networks division. This write-down was made in order to align the book value of its linear television business with the current market reality. The company has faced challenges due to uncertain advertising revenue and sports rights renewals, particularly with the NBA moving on. This move comes two and a half years after the merger of Discovery and Warner Media, during which the value of the linear assets has significantly decreased.
One of the key factors contributing to the write-down is the loss of a lucrative basketball package to Amazon. Warner Bros. Discovery had matching rights and is currently suing the NBA in an attempt to regain the games. However, the chances of prevailing in the lawsuit seem slim. This loss has been described as a massive blow to the company, and investors are understandably concerned about the impact on their investments.
The impairment charge was triggered by the difference between market capitalization and book value, as well as continued softness in the U.S. linear advertising market. Additionally, uncertainty surrounding affiliate and sports rights renewals, including those with the NBA, played a significant role in the decision. Warner Bros. Discovery also reported $2.1 billion in pre-tax acquisition-related amortization of intangibles, content fair value step-up, and restructuring expenses.
Following the announcement of the write-down, Warner Bros. Discovery’s stock declined by about 6.5%. Investors have expressed their concerns and some have even called for drastic actions, such as breaking up the company. The company may be considering asset sales, including its games business, in an attempt to address these challenges. The stock is currently down about 70% from the merger, indicating the severity of the situation.
The recent earnings report also highlighted some positive developments, such as a significant increase in streaming ad revenue and subscribers. Warner Bros. Discovery’s streaming platform, Max, added 3.6 million subscribers and saw a surge in streaming ad revenue by nearly 100%. However, total Direct-to-Consumer (DTC) sales fell by 6%, and losses widened to $107 million. Studios faced tough comparisons from the previous year, particularly in the games sector.
In terms of revenue, Warner Bros. Discovery reported a 6% decrease, with total revenue amounting to $9.7 billion. Networks revenue and profit both fell by 8%, driven by declines in distribution and advertising revenue. Advertising revenue decreased by 9% due to audience declines and a soft advertising market in the U.S. On the other hand, content revenue rose by 5%, primarily due to third-party licensing deals.
Despite the challenges faced by Warner Bros. Discovery, CEO David Zaslav remains optimistic about the company’s future. He emphasized the company’s commitment to its global direct-to-consumer business, highlighting the growing momentum seen in recent quarters. With ongoing international expansion and investment in high-quality content, Warner Bros. Discovery is aiming to overcome the current financial hurdles and emerge stronger in the long run.