Media companies take $15 billion hit on cable as industry turns to ‘shrinking to survive’

It was a brutal week for the value of the cable bundle, as
Warner Bros. Discovery
(
WBD
) and
Paramount Global
(
PARA
) both took significant write-downs on just how much their respective cable businesses are worth.

On Wednesday, WBD reported a massive $9.1 billion impairment charge related to its TV networks unit following the loss of
a key media rights deal with the NBA
.

It was a similar story for Paramount, which said Thursday it took a nearly $6 billion write-down on the value of its cable business, citing “recent indicators in the linear affiliate marketplace.”

The back-to-back moves
highlight the struggles within the industry
as more consumers cut the cord and companies focus their efforts on streaming. But that undertaking has proven to be quite challenging.

And while Paramount —
along with Disney
(
DIS
) — reported a profitable quarter for its streaming unit this week, investor skepticism over the industry’s path forward remains clear.

All three stocks are down year to date against an 11% gain for the S&P 500 (
^GSPC
). Over the last year, Warner Bros. stock is down 50% while Paramount has lost a third of its value.

For years, linear advertising and affiliate fees had consistently boosted revenues for these networks. The shifting to streaming saw cable subscribers decline, hurting affiliate fees, and
streaming companies now entering the ad market
have taken another leg out of the stool.

“The timing of these impairment charges comes as Paramount and Warner are under increased strain from their outsized debt loads,” Third Bridge analyst Jamie Lumley wrote in an email to Yahoo Finance. “The impact to their tax obligations is certainly a factor as both companies look for any opportunity to stabilize their balance sheets.”

Lumley added, “The writing has been on the wall that cable businesses are not going to recover from their revenue and profitability slides.”

Although profitability has improved, the pressure from deteriorating linear networks, coupled with heavy debt loads, has forced legacy media giants to cut costs.

Warner Bros.
has scrapped
multiple projects. Paramount said Thursday it plans
to lay off another 15%
of its workforce. Disney
restructured
its entire business.

And virtually
all of the major streaming giants
have raised prices at a time when the consumer is becoming more choosy, with
churn rates
hovering at elevated levels.

KeyBanc analyst Brandon Nispel said recent strategies from Paramount and others seem “to center around shrinking to survive, where the potential growth of the business is likely to be challenged.”

Rumors have swirled when it comes to future strategic options, which could include sales and splits. Paramount, for its part, is currently going through the process of being acquired by Skydance, with the company saying this week it expects the deal to close in the second quarter of next year.

And with impairment charges making the financing demands of a takeout lower, perhaps now is the time for these companies to start cleaning up their balance sheets.

“For Paramount and Warner, both companies have seen double-digit declines in advertising and distribution revenue for years,” Third Bridge’s Lumley said. “These write-downs, while significant in size, do not come as a major surprise given the pressure this industry has continued to face. … In terms of future write-downs, it would not be surprising to see further reevaluations across the industry of the value of cable businesses.”

Alexandra Canal
@allie_canal

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