Warner Bros. Discovery (NASDAQ:WBD) encountered a tumultuous week as its stock hit a new low following reports suggesting the media conglomerate may lose a crucial media rights agreement with the National Basketball Association.
A Wall Street Journal report indicated that Comcast’s NBCUniversal (NASDAQ:CMCSA) is crafting a $2.5 billion bid to potentially shift NBA broadcasting away from Warner Bros.’ TNT network.
Financial analysts foresee significant ramifications for the embattled media giant if this scenario materializes.
Macquarie analyst Tim Nollen expressed concerns, stating, “Losing NBA rights would be a big negative for WBD.” Nollen emphasized the importance of sports content for linear TV ad sales, carriage fees, and the prospects of the Max streaming service, particularly as it gears up to enter a sports streaming joint venture with Disney (NYSE:DIS) and Fox.
Warner Bros. Discovery currently allocates $1.2 billion annually for NBA rights but failed to secure a new agreement with the league before the expiration of its exclusive negotiation window last week. The existing NBA rights deal concludes at the end of the upcoming season.
Meanwhile, Disney, the NBA’s other major broadcast partner, purportedly agreed to increase its annual payment from $1.5 billion to $2.6 billion to renew its deal. Amazon (NASDAQ:AMZN) is also negotiating a streaming rights package via its Prime Video service.
The significance of sports rights has surged for traditional media giants amidst cord-cutting trends. Such content is deemed “sticky,” as it fosters customer loyalty and incentivizes subscription fees for cable packages or streaming services.
However, the landscape has become fiercely competitive, with tech behemoths like Amazon, Apple (NASDAQ:AAPL), and YouTube (NASDAQ:GOOG, NASDAQ:GOOGL) aggressively pursuing sports streaming agreements. This intensification has driven up the overall cost of sports rights, exacerbating the challenges faced by traditional media companies grappling with streaming losses and plummeting linear advertising revenue.
Bank of America analyst Jessica Reif Ehrlich underscored the importance of NBA rights renewal for Warner Bros. Discovery’s future, particularly given TNT’s elevated carriage fees, estimated at $3 per subscriber.
Analysts warned of potential repercussions should Warner Bros. Discovery lose the NBA media rights, including adverse effects on affiliate fees negotiation and a downturn in TNT’s performance.
Citi analyst Jason Bazinet estimated a potential $250 million decline in adjusted EBITDA, driven by reduced ad revenue and diminished affiliate fees for TNT.
MoffettNathanson analyst Robert Fishman emphasized TNT’s significance within Warner Bros. Discovery’s network segment, highlighting the NBA’s pivotal role in anchoring TNT’s programming schedule.
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