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S&P Global Ratings has downgraded Warner Bros Discovery from "stable" to "negative," citing continued deterioration.
S&P Global Ratings has downgraded its outlook on Warner Bros Discovery (WBD) from “stable” to “negative,” citing ongoing declines in the media company’s cable TV business and potential challenges arising from the possible loss of broadcast rights for National Basketball Association (NBA) games.
Warner Bros Discovery’s cable TV segment, which generates about half of the company’s revenue, has been hit hard by a decline in advertising dollars and the growing trend of cord-cutting as consumers increasingly shift to streaming services.
These challenges led the company to write down the value of its TV assets by approximately $9.1 billion earlier this month.
S&P’s revised outlook reflects concerns that Warner Bros Discovery’s high debt levels will persist due to the ongoing struggles in its cable TV business, hindering its ability to reduce debt quickly. Despite these concerns, S&P reaffirmed the company’s “BBB—” investment-grade credit rating.
As of June 30, Warner Bros Discovery had a gross debt of $41.4 billion after repaying $1.8 billion in the second quarter.
The potential loss of NBA broadcast rights after the 2024-2025 season is expected to exacerbate the company’s challenges. Last month, the NBA awarded broadcasting rights to Walt Disney’s ESPN, Comcast-owned NBCUniversal, and Amazon.com, ending a four-decade-long partnership with Warner Bros Discovery.
Warner Bros Discovery subsequently filed a lawsuit against the NBA after the league rejected its matching bid for Amazon’s package. The NBA has historically contributed significantly to Warner Bros Discovery’s profits through advertising revenue across its linear TV channels and streaming services, including Max.
Despite the challenges in the cable TV sector, Warner Bros Discovery has seen growth in its direct-to-consumer user base, which reached 103.3 million. This growth was driven by the introduction of cheaper ad-supported products and the expansion of its Max streaming service to new markets.
S&P noted that Warner Bros Discovery’s extensive film and TV library could help it establish a compelling streaming service. However, sustained growth in this area will be crucial to offset the decline in linear TV.
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