Warner Bros. Discovery Sets Ceiling on Its Looming NBA Renewal

Shares of Warner Bros. Discovery were down 11.66 % Friday morning, after the company issued a fourth-quarter earnings report that fell shy of Wall Street’s expectations.

Two hours into the trading day, shares had fallen to $8.45, as investors reacted to a greater-than-expected loss in sales. The stock closed Friday at $8.61, down 9.94%.

WBD reported a net loss of $400 million, or 16 cents a share, on revenue of $10.28 billion—which marked a 7% decline compared to the year-ago period. Analysts had expected WBD to post a loss of 8 cents a share on $10.34 billion in revenue.

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At the networks segment, advertising revenue dropped 14% to $1.95 billion, as post-strike audience declines and a soft scatter market continued to erode the company’s commercial impressions. Distribution revenue slipped 3% to $2.75 billion. All told, the cable networks generated $5.05 billion in total revenue, down 8% versus the fourth quarter of 2022.

The studio segment took a much bigger hit than the TV side of the ledger, as revenue fell 18% to $3.17 billion.

“This business is not without its challenges,” WBD CEO David Zaslav said during the company’s earnings call. “Among them, we continue to face the impacts of ongoing disruption in the pay-TV ecosystem and a dislocated linear-advertising ecosystem.”

While Zaslav did not offer any further gloss on the joint sports streaming venture WBD has embarked upon with Disney and Fox, he emphasized that the service was designed to appeal to the 60 million U.S. TV households that do not subscribe to the traditional pay-TV bundle. “We don’t see a lot of people unsubscribing to cable in order to get this,” Zaslav told investors. “The younger generation that is not subscribing, we’re able to go after those, [who] we are missing.”

Zaslav also reiterated WBD’s commitment to re-up with the NBA, which has been an integral part of the TNT Sports brand for decades. Along with fellow legacy rights holder Disney, WBD is about to enter a 45-day negotiating window with the league that will extend through April 22.

The current deals expire at the close of the 2024-25 season. In addition to hammering out what seem like inevitable extensions with WBD and Disney, the NBA is also expected to carve out another package or two with the likes of NBC and Amazon Prime Video.

During the most recent NBA renewal, the league and its network partners agreed to a nine-year, $24 billion juggernaut that was nearly 2.8 times more expensive than the previous contract. A WBD exec said the investments team had arrived at an internal valuation of the NBA’s worth, one which they will not deviate from when the time comes to work out a payment schedule.

“It’s very easy to lose control over sports rights investments,” chief financial officer Gunnar Wiedenfels said toward the end of the call. “That’s not how we do it. We know exactly what value we’ll assign, and we will remain disciplined during our discussions.”

(This article has been updated in the second paragraph with WBD’s closing share price.)

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