In September 2022, a few months before Bob Iger unexpectedly returned to Disney, he warned that "a world of hurt" was coming to the linear TV business. He told interviewer Kara Swisher that: 'linear TV and satellite is marching towards a great precipice, and it's going to be pushed off... I can't tell you when, but it's going away'. We can see and feel that time is just around the corner.



On 7 August, Warner Bros. Discovery took a $9.1 billion impairment charge on its linear cable channels. The loss of NBA rights was certainly a major contributor, but uncertainty around affiliate renewals was also a big problem. Paramount Global took an impairment charge of around USD 6 billion on its cable channels just a few days later. This was triggered by the valuation of the Skydance deal, a $15 billion write-down that evaporated in an instant.



The cable TV market has been losing position and profits for years. The infamous Bob Iger earnings call in August 2015 was the first big warning and 'kind of put everyone's attention on the beginning of the decline', to quote Bank of America's Jessica Reif Ehrlich. Since then, the slow melt has pretty much turned into a near-total collapse.



The decline has been driven by cord-cutting, of course, but that's not all. In recent quarters, subscriber numbers have been falling faster than carriage fees have been rising. Advertising money is fleeing TV and going to streaming platforms with ad-supported options. It's the new and biggest place for marketers to spend their budgets. 



Robert Fisherman, a senior analyst at Moffett-Nathanson, noted that cable networks 'are being forced to essentially cut expenses to alleviate or try to alleviate some of that pressure'.
The business model of the past 30 years has been based on the economics of pay-TV, with ever-increasing carriage fees and valuable advertising inventory. Some of these traditional entertainment companies are diversified (e.g. Disney, NBCUniversal's lucrative theme parks, Comcast's internet business). Others are more focused. Fox Corp, with almost all of its revenues linked to sports and news. WBD, Paramount, AMC Networks and others are in a particularly precarious position.



Analysts say cable channels could become the new newspapers, trying to find investment as long as possible. They could also seek a roll-up, either by an existing or a third party. Reif Ehrlich says: 'Someone will spin off their linear assets and someone will roll them up. You can get rid of duplicate advertising functions, distribution - there's a lot of cost in combining. A roll-up could be a cash cow'.



There is no doubt that the value of cable channels is declining. The question is how quickly the pay-TV system will disintegrate and how low carriage fees can go. While waiting for answers, investors may hold back or wait for better times, such as bankruptcy.



Paramount, despite the Skydance deal, is moving forward and trying to make deals. On the 8 August earnings call, Paramount co-CEO Chris McCarthy announced the portfolio that Paramount needs to reshape in order to be the best competitor in the future. With this in mind, the huge write-downs may paradoxically give the companies a clearer path forward. 
It is also interesting to note what Laurent Yoon (analyst at Bernstein) wrote about Paramount on 9 August: 'A $6 billion impairment charge sounds like a bad headline, but we believe that the book value of their goodwill is a legacy of past deals (such as WBD) and the upcoming transaction with Skydance is an opportunity to face reality.'

Broadcast networks and live sports are in vogue, and entertainment is now firmly a streaming game. For traditional players, streaming is just starting to become a profitable business.
It's a way forward that may not be as lucrative as the old pay-TV model, but it can still work. The models just have to adapt. Now they just need Wall Street to get on board. And that will be no easy task.
Cable TV is fast becoming a thing of the past. Streaming has all the advantages - if you can watch what you want, when you want, what's the reason not to? The recent Olympics perfectly demonstrated the benefits of choosing a streaming platform over TV. The entertainment market needs to adapt to the new reality as soon as possible. Whoever does it soon and well enough will reap billions of dollars in profits.

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#SzymonKarbowski #StreamVX #cableTV #linearTV #cableTVmarket #Paramount #WarnerBrosDiscovery #Disney #BobIger #NBCUniversal #Comcast #videostreaming

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