Warner Bros. Discovery's $10 Billion Loss Amid TV Network Writedown Spurs Investor Panic
Thursday, Aug 8, 2024 5:00 pm ET
Warner Bros. Discovery reported a staggering net loss of nearly $10 billion for the second quarter, more than eight times the loss from a year earlier, primarily driven by a $9.1 billion writedown on the value of its traditional television networks, including CNN. This significant decrease reflects the ongoing shift of audiences from cable television to streaming platforms, which has decimated advertising and subscription revenues once foundational to traditional TV networks. Subsequently, shares of Warner Bros. Discovery plummeted nearly 13% on Thursday to a record low.This past Wednesday, Warner Bros. Discovery, a prominent force in the media and entertainment industry, unveiled a troubling second-quarter financial report. The company experienced a 6.2% year-over-year revenue decline to $9.71 billion, with net losses nearing $10 billion. The earnings report revealed poor performance across all income statement categories.Chief among the startling disclosures was Warner Bros. Discovery's decision to slash the value of its traditional television networks such as CNN and TNT by $9.1 billion. In 2022, Discovery acquired WarnerMedia from AT&T in a transaction valued over $40 billion, merging to create Warner Bros. Discovery. The legacy television assets from this acquisition have now been significantly devalued.Comments suggest that this writedown indicates that the value of such traditional cable channels has diminished significantly since the 2022 merger. Notably, Warner Bros. Discovery's network segment, including CNN, has seen continuous revenue declines over recent quarters. Over the past year, the company has laid off over 2,000 employees, with CNN alone cutting around 100 positions last month. The large-scale layoffs at CNN underscore the network's declining value, which has tumbled into negative territory, reflecting persistent cash flow challenges.Warner Bros. Discovery's CEO, David Zaslav, remarked during the post-earnings call on Wednesday that the $9.1 billion non-cash writedown pertained to their cable networks, such as CNN, TNT, and TBS, which have suffered from user churn, diminishing viewership, and a tepid advertising market. The migration of audiences to streaming platforms like Netflix has siphoned off substantial viewer bases and subscriptions.Adding to its woes, Warner Bros. Discovery's cable segment recently took another hit as TNT failed to renew its broadcast rights for the upcoming NBA season. The NBA's decision to break from their long-standing partnership, opting instead for an $76 billion, 11-year media rights deal with Disney, Comcast, and Amazon, further impacted the company's bottom line.The writedown underscores the broader industry trend of traditional cable viewers migrating to streaming services, eroding staple revenue streams like ad sales and subscriptions. This is an industry-wide phenomenon, as evidenced by Disney's recent Q3 earnings report, which similarly showed a dip in cable TV ad sales and subscriber numbers.Following the earnings release, Warner Bros. Discovery's stock dropped nearly 10% in after-hours trading on Wednesday and continued its slump on Thursday morning, hitting an all-time intraday low of $6.73 and closing down 12.7%. Over the past two years, the company's stock has declined by more than 70%.Investors should be aware of the market risks and exercise caution in their investment decisions. This document does not constitute individual investment advice and has not considered the specific investment goals, financial situation, or needs of any particular user.