Investors have punished Warner Bros. Discovery (NASDAQ: WB), the conglomerate put together by merging the assets of Discovery and AT&T’s Warner operations. Most of what was created comprises “old media” assets. Old media companies, both public and private, have been punished by owners. Warner Bros. Discovery’s stock has fallen 42% in the last year. The S&P 500 is up 30%.
A quick look at the Warner Bros. Discovery assets shows why the company is under siege by investors. One of the largest operations is CNN. It once had profits of over $1 billion. Those are dropping sharply. It is primarily a TV network funded by traditional cable providers and national TV advertising. Cable companies are being dismantled by streaming and cannot afford to pay fees for CNN. Google, Facebook, and Amazon have cannibalized national advertising. CNN’s online ads have struggled with the same huge competitors for digital ad dollars.
Warner Bros., the century-old movie studio, competes with streaming services, particularly giants Amazon Prime Video and Netflix. The number of people who go to movie theaters has dropped. Warner Bros. Discovery’s Max streaming channel was supposed to offset falling theater attendance. However, consumers will only pay for so many streaming services. Max has to elbow out Netflix and Amazon, along with Disney+, Apple TV+, Hulu, and a number of smaller players. Netflix may be America’s greatest media company.
Most of Warner Bros. Discovery’s other TV assets are niche cable channels, including Turner Classic Movies and Asian Food Network.
The company’s most recent effort to get itself out of its predicament is a merger with also troubled Paramount (NASDAQ: PARA). Why combine two falling companies? Merger talks were called off recently.
Warner Bros. Discovery’s revenue dropped 7% in the most recently reported quarter to $10.3 billion. The company had a net loss of $400 million. Revenue at the famous studio business fell 17% to $3.2 billion. Revenue at the networks, which includes CNN, dropped 9% to $5 billion. The streaming business continues to struggle.
The simple view of Warner Bros. Discovery is that while it has some good brands, it is in businesses that are being destroyed by competition from huge, successful companies like Alphabet (Google ad revenue) and Amazon (Prime Video streaming).
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