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S&P has revised its outlook on Warner Bros Discovery (WBD) from "stable" to "negative" due to a decline in its cable TV business.The potential loss of NBA broadcast rights could further impact WBD's bottom line.Despite challenges, WBD's direct-to-consumer user base has grown to 103.3 million, aided by the expansion of Max to new markets.WBD's ability to translate its strong asset base to sustained growth will be key to offsetting linear declines.The media industry has been hit with a significant development as Standard & Poor's (S&P) has revised its outlook on Warner Bros Discovery (WBD) from stable to negative. This decision is a direct result of a noticeable decline in the company's cable TV business, which accounts for approximately half of Warner Bros Discovery's revenue. The slump in ad dollars and the increasing trend of cord-cutting by consumers shifting to streaming services have been identified as the primary culprits behind this downturn.
The situation has been further complicated by the potential loss of broadcast rights for the National Basketball Association (NBA) games. This development could significantly impact the company's bottom line. The NBA has been a significant contributor to Warner Bros Discovery's profit, generating substantial ad dollars across its linear TV portfolio and streaming services, Max.
S&P's Revised Outlook and WBD's Legal TussleS&P, in its statement on Friday, indicated that its revised outlook reflects expectations that Warner Bros Discovery's debt levels would remain high as the decline in cable TV continues to impact its ability to quickly pay down debt. As of June 30, Warner Bros Discovery had a gross debt of $41.4 billion, even after repaying $1.8 billion in the second quarter.
The NBA's decision last month to award Walt Disney's ESPN, Comcast-owned NBCUniversal, and Amazon.com rights to carry the league's games marked the end of a four-decade-old partnership with Warner Bros Discovery. This development has led to a legal tussle, with Warner Bros Discovery filing a lawsuit against the NBA after the league rejected its matching bid for Amazon's package.
WBD's Growth Amid ChallengesDespite these challenges, there are some positive aspects to Warner Bros Discovery's current situation. The company's direct-to-consumer user base has grown to 103.3 million, aided by cheaper ad-supported products and the expansion of Max to new markets. S&P has acknowledged this, stating that Warner Bros Discovery's deep film and TV library gives it the tools to make it a compelling streaming service. The ability to translate its strong asset base to sustained growth will be key to offsetting linear declines.
This situation is reminiscent of similar challenges faced by other media companies in the past. For instance, in the early 2000s, the music industry grappled with the advent of digital music and the decline of physical sales. Companies had to adapt and innovate, leading to the rise of digital platforms like iTunes and, later, streaming services like Spotify.
In conclusion, the media landscape is undergoing significant changes, with traditional cable TV businesses facing challenges from cord-cutting and the rise of streaming services. Warner Bros Discovery, with its substantial debt and potential loss of NBA broadcast rights, is feeling the impact of these changes. However, the company's growing direct-to-consumer base and strong film and TV library could provide a path to sustained growth. As the situation unfolds, it will be interesting to see how Warner Bros Discovery navigates these challenges and adapts to the evolving media landscape.