Hot August Write-Downs: Big Media Can’t Hide From Hard Decisions on Cable Valuations Any More

As I read through this article, it brought back memories of my time at Broadcasting & Cable magazine, which felt like an eternal presence in the radio and TV industry. It seems bittersweet to see such a staple of our community fading away after more than 90 years.


As someone who has grown up with the magical world of television, I can confidently say that this past week has been nothing short of monumental for the industry. While it may not have garnered as much attention as the Moon landing or the finales of “MASH” and “Survivor Season 1,” it holds a significant place in my heart and the collective memories of many television enthusiasts like myself. The events that unfolded during this week will undoubtedly leave a lasting impact on the way we consume and perceive television, marking yet another milestone in its ever-evolving history.

As an avid observer, it’s undeniable that the recent earnings reports from leading entertainment conglomerates have painted a clear picture – a giant, unavoidable challenge in the form of declining revenues from traditional cable channels has been lurking on their financial statements for quite some time. It seems that the valuations traditionally assigned to these channels must now be reduced substantially, perhaps even by double digits.

As someone who has spent years working in the media industry, I can’t help but feel a sense of déjà vu as I watch these massive write-downs by Warner Bros. Discovery, Paramount Global, and AMC Networks. It seems like only yesterday that the cable TV boom was at its peak, and every network seemed to be cashing in on lucrative deals with advertisers.

Writing off $9.1 billion by WBD doesn’t imply that their outlets suffered massive losses during the March to June quarter. Instead, it’s an adjustment made to match past projected profits with the actual earnings. The earning potential of these channels has significantly decreased over the years, causing this write-off to lower expectations. It’s a tough pill for executives to swallow as it signifies acknowledging failure. However, it reduces the pressure to artificially support struggling assets or mislead investors about cord-cutting, which is indeed a significant issue. When customers cancel traditional video services like Comcast or Charter, it directly impacts Hollywood because MVPDs pay channel owners based on the number of subscribers. With fewer cable subscribers overall, this results in lower affiliate fees for everyone.

Essentially, legacy media giants such as Paramount Global need to adapt to reality. It’s unreasonable to keep airing shows like “Ridiculousness” repeatedly on MTV and anticipate that cable providers like Comcast, Charter, DirecTV, YouTube TV, etc., will continue to pay the same high fees they once did when MTV was at its peak with hit original series like “The Osbournes” and “The Real World.”

The decrease in valuations has a substantial influence on various aspects of the company’s operations. It impacts the company’s share price and total market value, it affects the company’s borrowing capacity, creditworthiness, and associated interest rates, and it may limit or shape the company’s aspirations for mergers and acquisitions.

As a long-time fan of Disney’s content and someone who has closely followed the company’s evolution over the years, I find myself deeply intrigued by this week’s financial report from the media giant. Having witnessed the tumultuous departure of Bob Chapek and the return of Bob Iger as CEO, I can’t help but feel a sense of nostalgia mixed with anticipation for what lies ahead.

Despite narrowed streaming losses to $19 million during the quarter and renewed success at the box office with movies like “Deadpool and Wolverine” and “Inside Out 2”, Iger was met with tough questions from Wall Street regarding decreased activity in its theme parks. The robustness of Disney’s Experiences segment has been instrumental in boosting Disney’s financial performance in recent quarters. The apprehensive nature of analysts’ inquiries during the earnings call underscored their concerns about the future demand for Disney’s offerings. Although streaming is expanding, it isn’t expanding quickly enough to compensate for the decrease in revenue from traditional cable channels such as ESPN and Disney Channel that once appeared to be a cash cow.

The long-awaited second consequence of financial adjustments on linear assets at WBD and Paramount has arrived, following a significant shift in the streaming industry that occurred two years ago. This change was triggered by Netflix’s growth rate slowdown, which became evident in April 2022. As Netflix seemed to stabilize at approximately 230-250 million global subscribers, companies like Disney, WBD, Paramount, and Comcast were compelled by market forces to scale back their ambitious plans of acquiring more than 500 million paying customers worldwide.

As a movie enthusiast reviewing the current state of Hollywood, it’s clear that the glory days of rapid ad and affiliate fee growth are no longer on the horizon due to cable cutbacks. This reality was starkly illustrated by Paramount’s announcement of write-downs, accompanied by the unfortunate news that approximately 2,000 employees in the U.S., or 15% of their workforce, will be let go. It seems that Paramount can no longer sustain such a large overhead for assets that are more like melting ice cubes – profitable now, but dwindling instead of expanding.

As a passionate movie enthusiast, I’ve been closely following the turbulent waters of the pay TV sector. The relentless wave of unfavorable news has only intensified due to the fact that mergers and acquisitions (M&A) aren’t necessarily the quick fix we were hoping for. The 2022 union of WarnerMedia and Discovery, a bold move at the time, was supposed to strengthen both companies amidst tough times by expanding their cable market share instead of contracting it. However, after eight consecutive quarters of double-digit advertising declines within the combined WBD cable group, as pointed out by Robert Fishman from MoffettNathanson this week, the optimism for a substantial turnaround has dwindled. As Fishman put it in his recent note, following weak Q2 earnings that sent WBD’s stock price to an all-time low, “The enthusiasm among advertisers to invest in linear cable networks outside of sports (and to a lesser extent, news) has significantly diminished as viewers exit the traditional viewing ecosystem and digital alternatives become more advanced and widespread.”

Following the expiration of time for Paramount Global to expand its Paramount+ platform as an alternative to the decline in cable subscriptions, the company decided to accept Skydance Media’s takeover offer. This week, some layoffs were announced in anticipation of the Skydance deal, which is expected to be finalized next year. Even without this merger, Paramount would likely have needed to reduce staff due to budget cuts for channels that have historically required a significant amount of labor to operate.

The changing landscape of the pay TV industry was underscored by the announcement that Broadcasting & Cable magazine, a weekly business publication that has been around for over 90 years, will cease operations entirely. For those who worked with the magazine during their tenure from 1995 to 1997, including myself, it’s a bittersweet moment. The closure of this long-standing industry resource brought on a wave of nostalgia among many in the close-knit community. It was not uncommon for people to find their first TV job by scanning through the listings in B&C’s back pages.

Hot August Write-Downs: Big Media Can’t Hide From Hard Decisions on Cable Valuations Any More

It wasn’t difficult to foresee the drastic change approaching for cable, as we had predicted four years ago with our “RIP Cable TV” cover story in June 2020. However, when you look at the hard numbers and financials, it feels like a time of mourning for an industry that once held great pride.

During these turbulent periods in media, there’s a wealth of knowledge to be gleaned. Back in the 1990s and the early 2000s, the cable industry was perceived as unbeatable, spearheading the multi-channel transformation right into American homes. While I worked at B&C, the traditional broadcasting sector was often viewed as outdated and destined to be completely replaced by cable. In simpler terms, cable TV was seen as the future, while broadcasting seemed like a dinosaur on its way to extinction.

In approximately three decades, networks such as ABC, CBS, NBC, and Fox have remained robust compared to TNT, USA Network, and other once-prominent basic cable channels. A major factor contributing to their longevity is the acquisition of expensive sports rights, which keeps them competitive. However, another crucial element ensuring their survival is the enduring advantage of the broadcast network model. This model, similar to the era of William Paley and David Sarnoff, relies on a partnership between networks and local affiliates across the nation. These local stations air local news and programming during the day, transitioning to network-supplied programs at night. As a result, ABC, CBS, Fox, and NBC can be viewed for free in most parts of the country with a television set and a digital antenna, thanks to their numerous affiliate stations distributed across the 210 TV markets in the U.S., as measured by Nielsen.

In recent times, the significant shift by 180 degrees in the cable industry serves as a useful lesson about how markets are constantly evolving. Stability is rare; change is inevitable.

In 2016, AT&T’s acquisition of Time Warner saw TNT and CNN, part of the Turner division, highly valued compared to HBO at that moment. However, cable channels, especially those providing general entertainment, eventually became replaceable by streaming services as consumers grew accustomed to the technology and on-demand content. On the other hand, the local-national broadcast network structure, with its broad reach and regional specificity, is harder to replicate. This incident serves as a reminder of what factors contribute to longevity and enduring value.

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2024-08-10 03:17