Intro for August 9, 2024

Dear Gossips,   

Get ready for another round of doom and gloom headlines, because movie studios are reporting their second-quarter financials and it’s bad news. 

The worst news is from Warner Bros. Discovery, which reported a $9.1 billion write down mostly stemming from value lost on traditional linear television networks like HGTV, CNN, and Food Network. This sent WBD stock spiraling yesterday, dipping below $7 per share. But it’s also bad news from Paramount, which is now in the process of merging with David Ellison’s Skydance Media (the deal is expected to close a little more than a year from now). They reported a $5.98 billion write down, and will lay off 15% of their US workforce, which is about 2,000 people. 

Mergers are good for who, again? Look, I get it. Netflix destroyed the economic model of the movie business with direct-to-consumer streaming, and legacy studios had to start merging or die in order to compete. Disney was the only studio remotely poised to compete, and that’s because they spent the 2000s and early 2010s buying some of the most lucrative and beloved production companies and movie studios in entertainment to add to their already dominant family-oriented film catalog. But even though studios like Warner Brothers and Paramount have vast film libraries of their own, they never figured out how to leverage them in the streaming era, at least not fast enough to evolve as independent entities. Now they’re burdened with merger debt, and these bleak earnings reports stem from that.

Even though everyone now knows streaming doesn’t make enough money to support a robust industry (as theatrical film releases and linear TV did for nearly a century), the technology isn’t going away, and everyone is still figuring out how to adapt to it. A smaller workforce is only one part of that, and I KNOW no one is “owed” a job in the entertainment industry, but I bet you would be pretty upset if your job of however many years was eliminated because of a merger, too. (There is a remarkable lack of sympathy for the regular folks losing their jobs in this industry.)

So where does that leave us? Well, besides yet another shrinking of the workforce in the film industry, linear television continues to be incredibly imperiled as a business model. Cord cutting continues apace, and a big part of Warner Bros. Discovery’s problem is that they’re likely losing their NBA contract starting with the 2025-26 season. Live sports are basically the only thing drawing wide audiences to linear TV anymore, and losing a crown jewel like the NBA hurts. Besides finding a way to keep live sports on some of their networks, I don’t know what the solution is for that. WBD did report subscriber growth for Max, now topping 100 million subscribers, but is that growing fast enough for Wall Street? Given how their stock price tanked, no.

I have the sinking suspicion that besides more layoffs, we’re going to see more films and series cancelled, either in development, or even tanked after production is complete. WBD is still carrying over $41 billion in debt as of June, they will continue looking at every option, no matter how craven, to chip away at that burden. As long as they’re trying to get out from under the debt left by AT&T’s disastrous acquisition and Warners’ subsequent merger with Discovery, it will continue to be a parade of bad headlines, especially if they can’t claw back any of the basketball rights. Super fun times we’re living in.

Live long and gossip,

Sarah