If you were to write the prestige TV version of traditional cable’s ongoing free fall, the current moment might be something like the crisis right before Act 3.
When Warner Brothers and Paramount both announced multi-billion dollar write-downs of their cable network assets within the same week earlier this month, it sure seemed like the death knell of cable TV.
Again, we’re pre-Act 3: The stakes have been raised. Hope is dwindling. The troops are tired. All is lost. But here’s the thing: This isn’t where the story ends, Dr. Jason Cherubini, co-founder and CFO of Dawn’s Light Media and executive in residence at Loyola University Maryland, stressed to CFO Brew.
Things aren’t looking great, but the sky isn’t falling, Cherubini said. Not all write-downs are the same. Sometimes, they can be a sure sign of trouble on the horizon, like Disney’s 2019 write-down on digital media company Vice, which eventually shut down in 2024, as the New York Times pointed out. Other times, write-downs are simply an acknowledgement of an asset already understood to have depreciated.
Cherubini sees the cable TV write-downs as falling firmly in the latter category. Did anyone really think of cable TV as a cash cow in 2024? “It’s to be expected because in terms of the impairment, it’s goodwill impairment,” he explained. “It’s not like they’re necessarily impairing an asset. It’s all based on how you value those assets.”
On the earnings call where he announced the impairment, Warner Bros. CEO David Zaslav noted “that even two years ago, market valuations and prevailing conditions for legacy media companies were quite different than they are today,” explaining that the “impairment acknowledges this and better aligns our carrying values with our future outlook.”
In Cherubini’s eyes, the biggest change of the last two years is simply the resilience of streaming. While many traditional companies seemed to view the astronomical growth of streaming during the pandemic as a fluke, he notes that now “we’re seeing a lot of people become cord cutters that I think we weren’t necessarily expecting…You’re seeing the vast majority of people have at least one streaming service, and are more comfortable adding on additional streaming services.”
And that’s largely what the impairments confirm. The sky-is-falling narrative seems to come largely from a misunderstanding of goodwill impairment, he continued.
“A lot of people think of impairment as ‘Oh, this asset has now been damaged or been hurt,’” he said. “It’s an accounting thing. They wrote down their cable channels. They still have their cable channels. Their cable channels are still operating in exactly the same way. They didn’t throw them away. All they did was say, ‘We had it on the books at this number. We followed a new valuation approach. It’s now this lower number,’ and that’s all it is.”
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For context: Warner Brothers took a $9.1 billion write-down; Paramount took a $6 billion one. “These numbers sound huge and scary, but these are still going to be operating businesses,” Cherubini said.
“The market is taking [the impairments] as a sign of reduced profitability in the future,” he continued, “but saying you’re taking a $9 billion impairment, write-down sounds really bad, but if it’s just, ‘Hey, we’re changing the way we account for this,’ it’s not a huge deal. The business is still going. It’s just a change in their valuation of future profits.”
Not on easy street yet. Still, both like Warner Brothers and Paramount have their share of problems, he clarified—but not necessarily the same exact ones. Many media companies have been trying to use their newer and budding streaming assets to cover the dwindling profits from traditional cable.
And to that end, Paramount, despite its seismic write-down, also hit a key milestone: streaming profitability, which Cherubini notes is something “everybody has been fighting to [do], to get their streaming services into the black.” The company reported a $26 million profit in its streaming division after losing $424 million in the same quarter last year. Analysts expected Paramount to report a loss of $265 million for the quarter, according to CNBC.
Warner Brothers, meanwhile, added 3.6 million new subscribers to its streaming service, Max, in the latest quarter, but “they just haven’t gotten to that level where that is their profitable version yet,” Cherubini clarified.
Act 3. So, how do these two media behemoths thread the needle for a happy Act 3, complete with storming the castle, rescuing the damsel in distress, and living happily ever after? Well, for starters, a Hollywood ending might not be in the cards—at least not in the near future.
Paramount, which has been part of a long sale process, is extending its shopping period as part of its merger agreement with Skydance to consider a competing acquisition bid from Edgar Bronfman, chair member of streaming service FuboTV, leaving the precise future of the company up in the air.
And on the Warner Brothers front, in the company’s latest earnings call, CFO Gunnar Wiedenfels addressed “rumors about potentially splitting up the company,” stressing that the company has been “operating under the one Warner Brothers Discovery strategy for the past two and a half years since creating Warner Brothers Discovery,” and noting that he’s “seeing evidence everywhere in the business of the benefits of those strategies.”