Warner Bros. Warner Bros.
Warner Bros. Discovery WBD announced recently that it is looking to sell the music copyright it holds.
This decision comes amid the high leverage of $50 billion that the company’s balance sheet holds due to the unsuccessful merger of Warner Media and Discovery in April last year.
The sale of the music collection, which will include some of the most valuable soundtracks of the Batman movie and also other tracks by renowned singers such as Bob Dylan, Bruce Springsteen, Neil Young and Joey Ramon, could fetch $1 billion for Warner Bros. Discovery will allow it to reduce its debt.
This is not all. Music is also gaining more attention on streaming platforms such a Spotify. Spotify SPOT has been in the news recently. Wall Street Journal reported that investors and music publishers are now buying super-hit albums for up to 30x their annual royalty. Warner Bros. is now in a good position. Discovery sells its music catalogs at an attractive price
Warner Bros. was not able to sell the rights during the sale. Discovery must protect the rights to the film soundtracks to continue to sell them.
Warner Bros. Discovery Attempts to Deleverage Its Balance Sheet
Warner Bros. has a large debt. Discovery has been a concern for top management for some time. To address this, CEO David Zaslav said in November last year that the company would be looking to cut costs by $3.5 billion over the next two years.
The initiation of the cost-cutting was done through hundreds of layoffs of workers the cancellation of multiple high-budget projects including the much-awaited Batgirl, Wonder Woman 3 and Man of Steel 2.
Warner Bros. Discovery also sought to restructure its streaming division which could significantly increase its revenues. It canceled CNN Plus’s service within a month of its launch. According to The Verge it attracted only 150,000 subscribers in the first two weeks compared to other streaming services like YouTube. Walt Disney’s DIS Disney Plus, which had 10 million subscribers on its very first day.
According to The Verge CNN Plus, if it continued to operate, it could suffer a loss of approximately $500 million over the next two-years. This would in no way reduce the debt. Thus, it seems that the company’s decision of shutting it down was pertinent.
Warner Bros. Discovery is about bring HBO Max and Discovery Plus together under one unit called Max. This will happen by spring of this year. Combining the resources of both units will make it easier to manage and offer viewers a variety of content that can help improve its bottom line. A company with a growing top line and reduced costs could generate positive cash flow that could be used to repay debts.
Warner Bros. Warner Bros.
Warner Bros. Discovery, Inc. price-consensus-chart | Warner Bros. Discovery, Inc. Quote
It also announced a significant increase in the ad free HBO Max streaming plan, which could help boost advertising revenues. This account accounts for close to 20% of its total revenues.
These changes are expected to make the company more profitable in the future. They could also help revive its share price which has fallen 57.9% over the past year compared to the Zacks Consumer Discretionary sector which dropped 26% during the same period.
These cost reductions and restructuring may help Warner Bros. While Discovery will pay down its $1.2B debt on a long-term base, it must also improve its content offerings to attract more viewers. This could increase the company’s revenues, lead to profitability, and manage its debt.
Zacks Rank & Stock to Consider
Warner Bros. Discovery currently holds a Zacks #3 (Hold) rank. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
An even better-ranked stock is in the same industry. Nexstar Media Group NXST has a Zacks Rank 1
Nexstar Media Group shares gained 8.2% in the past year. The Zacks Consensus Estimate on Earnings is set at $7.57. This estimate has been stable for the past 30 days.
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