S&P has revised its outlook for Warner Bros Discovery from 'stable' to 'negative', attributing this change to the media giant's declining cable TV operations, which could face further deterioration due to the possible loss of broadcast rights for National Basketball Association games. The cable TV sector, contributing roughly half of Warner Bros Discovery's revenue, is grappling with reduced advertising revenue and a shift away from traditional cable subscriptions as consumers migrate to streaming services. This has led the company to devalue its television assets by approximately $9.1 billion earlier this month.
S&P stated on Friday that this revised outlook is based on the expectation that Warner Bros Discovery's debt levels will remain elevated as the downturn in cable TV impacts its capacity to rapidly reduce debt. The company maintains its 'BBB-' investment-grade credit rating. As of June 30, Warner Bros Discovery's gross debt stood at $41.4 billion, following the repayment of $1.8 billion in the second quarter. S&P highlighted that the potential loss of the NBA's broadcast TV contract post the 2024-2025 season would exacerbate these challenges.
Last month, the NBA granted Walt Disney's ESPN, Comcast-owned NBCUniversal, and Amazon.com the rights to broadcast the league's games, thereby concluding a four-decade partnership with Warner Bros Discovery. Following the NBA's rejection of its matching bid for Amazon's package, Warner Bros Discovery filed a lawsuit against the league. The NBA has significantly contributed to the company's profits through advertising revenue across its linear TV and streaming platforms, including Max. The company's direct-to-consumer user base expanded to 103.3 million, aided by more affordable ad-supported offerings and the extension of Max into new markets.
S&P noted, 'WBD's extensive film and TV library... equips it with the resources to establish a compelling streaming service, and its capability to leverage its robust asset base for sustained growth will be crucial in counterbalancing the declines in linear TV.'
