Photo Credit: Getty Images
S&P Global Ratings has downgraded its outlook on Warner Bros Discovery (WBD) from "stable" to "negative," reflecting growing concerns over the company's declining cable TV business, which faces further risks from the potential loss of broadcast rights for National Basketball Association (NBA) games.
Warner Bros Discovery, a media giant that generates roughly half of its revenue from its cable TV segment, has been grappling with challenges such as a decline in advertising revenue and the ongoing trend of cord-cutting, as consumers increasingly shift to streaming services. These issues recently led the company to write down the value of its TV assets by approximately $9.1 billion.
S&P's decision to revise the outlook highlights concerns about Warner Bros Discovery's ability to manage its debt levels amid the downturn in its cable TV operations. The ratings agency reaffirmed the company's "BBB-" investment-grade credit rating but cautioned that the continued decline in the cable TV business could hinder Warner Bros Discovery's capacity to swiftly reduce its debt.
As of June 30, Warner Bros Discovery carried a gross debt of $41.4 billion, despite repaying $1.8 billion during the second quarter of 2024. The potential loss of the NBA broadcast rights, after the 2024-2025 season, poses an additional threat to the company's financial health. Last month, the NBA awarded broadcasting rights to Walt Disney's ESPN, Comcast-owned NBCUniversal, and Amazon.com, marking the end of Warner Bros Discovery's four-decade partnership with the league. In response, Warner Bros Discovery has filed a lawsuit against the NBA after its attempt to match Amazon's bid was rejected.
The NBA has been a significant contributor to Warner Bros Discovery's profitability, particularly through advertising revenue on its linear TV networks and streaming services, including Max. Despite the challenges in its traditional TV business, the company's direct-to-consumer segment has shown growth, with its user base reaching 103.3 million, bolstered by the introduction of ad-supported options and the expansion of Max into new markets.
S&P noted that Warner Bros Discovery's extensive film and TV library provides the company with strong assets for its streaming services. However, the agency emphasized that the company's ability to leverage these assets for sustained growth will be crucial to counterbalance the ongoing decline in its linear TV business.
