Warner Bros. Discovery to report earnings amid decline in linear television and loss of key NBA rights (Video)

Warner Bros. Discovery (UBI) will report third-quarter earnings before the bell on Thursday as the media giant grapples with a declining linear TV business, a weak advertising market and loss of its key media rights in the NBA.

In the second quarter of UBI took on a massive $9.1 billion impairment charge in relation to its television network division after losing those rights. The company is currently involved in litigation. after a lawsuit against the NBA in July, with reference to “unreasonable refusal” his proposal for relevant rights.

“We expect WBD’s third-quarter earnings to reflect the continuation of various business headwinds,” Bank of America analyst Jessica Reif Ehrlich wrote in a note ahead of the results.

Here’s what Wall Street expects in the third quarter, according to Bloomberg estimates:

• Income: $9.81 billion versus $9.98 billion in the third quarter of 2023

• Adjusted loss per share: -$0.12 vs. -$0.17 in Q3 2023.

• Subscriber network replenishment: 6.1 million versus a loss of 700,000 in the third quarter of 2023.

The company has struggled in recent quarters, with profits hurt by a weak linear advertising environment and pressure on affiliate fees, or the fees TV providers pay network owners to air their channels.

Online advertising revenue is expected to fall another 7% in the third quarter, after falling 10% in the second quarter and 11% in the first quarter, according to Bloomberg estimates.

The loss of NBA rights has further exacerbated these problems, with Deutsche Bank projecting that total branch revenue will fall by $560 million in 2026 as a result.

But recent agreement to extend transportation with Charter Communications, which included WBD’s Max streaming service in its package, should help stop the bleeding.

“If WBD’s contract extension with CHTR can be replicated in upcoming deals, we believe it will be a big improvement over expectations,” said BofA’s Reif Ehrlich.

However, this may prove challenging, with Deutsche Bank warning that “the upcoming round of renewals in 2025 will be with providers that have not necessarily demonstrated the same propensity to include streaming products in their video packages.” as Charter demonstrated.

Will streaming be a bright spot?

Beyond linear TV, streaming outperformed the company, adding nearly 4 million Max subscribers in the second quarter and streaming ad revenue up 98% year-over-year.

And while the streaming division reported a loss of $107 million in the second quarter, Wall Street analysts have largely shrugged it off, citing several tailwinds late in the year and into 2025.

These include the recent launch of the Max in markets outside the US, including Latin America and Europe. Recent price increases should provide new levels of profitability after the company raised the price of its ad-free plans on Max in June, bye increasing connections with competitors should increase your subscriber count and help prevent churn.

The company also has its own upcoming sports broadcast partnership with Disney (DIS) and Fox (FOX), although the judge temporarily blocked the launch, citing antitrust concerns.

It’s a tough battle

Overall, the battle for WBD shares remains tough, with shares down 30% since the start of the year.

Full-year adjusted EBITDA is still at risk of falling to $9 billion, according to Bloomberg’s latest estimates. That’s $5 billion below analysts’ expectations. at the moment of its merger.

There have been rumors about the company’s next move. Bank of America analysts recently laid out possible strategic options that could include separating the company’s digital streaming and studio businesses from its legacy linear TV division.

Comcast reported last week that he is exploring a similar concept and may spin off its cable networks into a separate company to “play offense” amid recent industry turmoil.

“This is a public company. We are all very conscious of our responsibility to present any strategic options,” WBD Chief Financial Officer Gunnar Wiedenfels said during the company’s second-quarter conference call in August. “We are very clearly focused on evaluating everything that goes beyond just running an operational business.”

Meanwhile, the company has committed to aggressively cutting costs, which has helped boost free cash flow. The company reportedly quit last summer another 1000 employees in various business sectors after the company eliminated the positions of about 100 employees in its CNN Network.

Alexandra Channel is a senior reporter for Yahoo Finance. Follow her on X @allie_canal, LinkedIn, and email her at [email protected].

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