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Shares of Warner Brothers Discovery are sinking on the company's disappointing results. The streaming giant took a massive $9 billion impairment charge related to its TV networks unit. Now for a deeper dive into the results, we're joined by Robert Fishman, Moffett Nathanson senior analyst here. Great to have you here. Just want to get your read in on the report from Warner Brothers Discovery and how investors should be kind of keeping the context, the context around this name alive, or at least in their thesis.

Sure. Good morning, and thank you for having me. Um, so, yeah, I mean, the print last night, um, was was not not a great print to to say the least. Um, you know, basically that the challenges continue and linear television is still the biggest driver of this company's profit. And as we all know, that the pressure on the ecosystem given cord cutting, given US linear advertising challenges is weighing on the company, and given the leverage that they have with the elevated level of debt, that becomes an even more difficult situation to to be in.

So Robert, and what does that tell us about where Warner Brothers is headed from here? Because I do think there might have been split reaction. I don't know if it's fair to say that. Yes, there were many concerned about what was in this report, but there also seems to be some optimism just about the recovery in the studios business. Is that maybe able to offset some of that concern that we did see in the ugliness of this quarter?

Yeah, listen, I think that there's a few big questions that still need to be answered for the future of this company. Um, you got to start with what's going on with the NBA front and center. Uh, there's lots of potential implications if they do end up losing. They're in the middle of a court case right now in terms of their matching rights. So if they end up losing that case or or dropping the case, um, and and moving forward without the NBA, it brings up a lot of questions to your to your point about what the future of this company looks like in terms of their linear affiliate fee negotiations. Clearly, they're doing a lot to try to um, capture as much sports rights out there from from others, um, to to help offset the the potential loss of the NBA. But in our opinion, um, it's still not likely to be enough. So there will be pressure on future affiliate fee negotiations, um, that come up as early as the end of this year or into next year for the Turner portfolio. Discovery is at the end of this year. So we'll see how uh, widely this this does um, become a negative for for the company in terms of the future negotiations. But to your studio point, that is a a real potential upside. It is a hit and miss business as as we all know. And when the movies are coming in and doing well, that that's a great thing like they had with Barbie last year. But when you have, uh, misses, uh, as they have recently, and the video games have not gone as well as last year. So there's a lot of different moving pieces within this studio line that the upside potential in the second half of the year is going to be uh, the return of the television studio and licensing after the strikes. So again, lots of different questions, lots of different moving pieces here.

Robert, going back to what you just said a minute to go about the loss of the NBA rights and the pressure maybe that's going to add or going to put on add and affiliate revenue. Have you modeled that out? I guess how big of an overhang maybe could this be for Warner Brothers at least in the short term?

So in the short term, um, they're pretty locked in through 24. So so we're not going to see that in the next couple quarters. The question is what happens when they negotiate, um, as I mentioned, the Discovery portfolio at the end of this year if that's able to stay separate and not get impacted if if they've lost the NBA by then. Um, then all eyes what will turn to the Turner negotiations, and they have some bigger deals coming in 25. So short term that they're still largely protected, um, that the bigger concern in the short term is going to be that US linear television impact, um, and what we've seen, I think now eight quarters of double-digit declines. So it it it's again, unfortunately, not a very pretty picture on the advertising front. And then on the affiliate fee front, um, we're we're going to still have to wait to see where these deals end up and and how negative it could end up being, but it also is dependent on what other sports rights they're able to to capture.

Yeah, Rob, I was looking at some of your analysis and the comparison of time spent on streaming and direct to consumer content platforms, all of them compared to Netflix, and how many of them are lagging, and and it's not even close here. So is there a clear vertical within direct to consumer or or genre that you expect Warner Brothers Discovery to lean into that could help them close that gap a little bit?

Yeah, that's a really interesting question. Um, clearly, as part of Max, which used to be known as HBO Max and known as other iterations over many years. Um, but we're down to to Max now, that the key question that that you're alluding to is HBO content, as you're showing here, um, is still the premium content that the premium driver for Max, as House of the Dragons is going on, right? That's going to capture new eyeballs, new new users, new signups. So HBO is still going to be the leading driver of Max. They put it together with the Discovery portfolio, but unfortunately, it still hasn't really completely uh, expanded to to a broader audience. So you you bring up the question, what else can they do? And to us, I think that there's going to be an openness or or at least look to explore potential licensing deals. Obviously, Paramount and given the uncertainty there, what we might learn a little bit more, uh, after market close today with their earnings. But if Paramount's open to licensing some of their content, you would expect Max to at least explore that. The other way, uh, Max and Warner Brothers Discovery is approaching this question is by bundling with other other streaming services. So they just recently launched a bundle package with Max and Disney Plus and Hulu.

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