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In a sobering sign of the challenges facing traditional television, Warner Bros. Discovery reported a massive $9.1 billion impairment charge related to the devaluation of its linear TV networks. This non-cash, pre-tax charge came after the company's asset reevaluation accounted for the difference between the "fair value" and "book value" of networks like Food Network, HGTV, Discovery, CNN, TNT, TBS, and Cartoon Network/Adult Swim.
According to the company, the impairment was driven by "continued softness in the U.S. linear ad market and uncertainty around affiliate and sports rights renewals, including the NBA." This hits came just two years after the merger of WarnerMedia and Discovery.
The $9.1 billion charge was part of a larger $11.2 billion hit to Warner Bros. Discovery's balance sheet, which also included $2.1 billion in pre-tax acquisition-related costs and restructuring expenses. This resulted in a net loss of $10 billion for the quarter.
However, the news wasn't all bad. Warner Bros. Discovery's direct-to-consumer business saw growth, adding 3.6 million subscribers globally to reach 103.3 million total for HBO, Max, and Discovery+. CEO David Zaslav cited the international relaunch of the combined HBO Max and Discovery+ streamer as a key driver of this expansion.
The company also reported a 99% year-over-year increase in streaming advertising revenue, up to $240 million. "Ad sales had its biggest streaming quarter ever in Q2," Zaslav said, "in part driven by greater engagement, increased ad-lite subscribers and early international traction."
Despite the linear TV challenges, Zaslav expressed optimism about Warner Bros. Discovery's streaming future, stating, "our top priority is our global direct-to-consumer business and we are extremely pleased with the growing momentum we are seeing." He pointed to actions like "reimagining our existing linear partnerships and pursuing new bundling opportunities" as ways to get Max in front of more consumers.
The impairment charge comes as Warner Bros. Discovery is embroiled in a lawsuit against the NBA over what it calls the league's "unjustified rejection" of the company's matching rights proposal for media rights. While the company did not provide much additional detail on the NBA situation, it expressed confidence in its legal position.
