The shifting landscape of television: A new era for media giants

A week of reckoning for traditional TV

This past week marked a significant turning point for the television industry, one that may not have the same cultural impact as the Moon landing or the finale of “MASH,” but is nonetheless monumental for the business of television. The second quarter earnings reports from major media conglomerates have made it clear: the era of traditional cable television is facing a harsh reality.

The financial fallout

Warner Bros. Discovery (WBD) led the charge with a staggering $9.1 billion write-down on the valuation of its core advertising-supported channels, including TNT, TBS, and Cartoon Network. Paramount Global followed suit, slashing $6 billion from the valuation of its MTV group outlets. AMC Networks also took a hit, with a $97 million charge reflecting the diminished returns from BBC America and its international cable channels.

These write-downs don’t mean these channels lost billions in the last quarter. Instead, they represent a recalibration of past profit projections to align with the current, less optimistic reality. The profit levels these channels once enjoyed have evaporated, and the write-downs serve to lower future expectations. It’s a bitter pill for executives to swallow, but it alleviates the pressure to prop up struggling assets or convince Wall Street that cord-cutting isn’t a significant issue. Because it is.

The impact on Hollywood

Every time a customer drops traditional video service from providers like Comcast or Charter, Hollywood feels the loss. MVPDs (multichannel video program distributors) pay channel owners a monthly carriage fee based on the number of subscribers. Fewer cable subscribers mean lower affiliate fees. It’s simple math.

Hollywood’s legacy media conglomerates must face the music. You can’t run episodes of “Ridiculousness” all day on MTV and expect the same carriage fees that MTV commanded during its heyday with shows like “The Osbournes” and “The Real World.”

The broader implications

The lowered valuations have far-reaching consequences. They affect stock prices, market capitalization, debt capacity, credit ratings, and the scope for mergers and acquisitions. The reckoning that began this week will likely extend to other media giants. Disney, for instance, reported earnings without a formal write-down on cable TV assets but highlighted the financial strain of building its direct-to-consumer unit, including Disney+, Hulu, and ESPN+.

Despite narrowing streaming losses and box office successes like “Deadpool and Wolverine” and “Inside Out 2,” Disney still faced tough questions about slowing activity at its theme parks. Streaming is growing, but not fast enough to offset the decline in traditional linear cable channels like ESPN and Disney Channel.

The end of an era

The financial adjustments on linear assets at WBD and Paramount are the long-awaited second shoe to drop following Hollywood’s realization of the streaming growth potential two years ago. The jolt came in April 2022 when Netflix’s subscriber growth plateaued. As Netflix stabilized at around 230-250 million worldwide subscribers, other media giants had to moderate their ambitions of amassing 500 million-plus paying customers globally.

Now, with the cable write-downs, Hollywood must confront the fact that the days of double-digit annual advertising and affiliate fee growth are over. Paramount’s recent decision to accept Skydance Media’s takeover offer came after the company ran out of time to grow the Paramount+ platform to offset the decline in cable. Some layoffs were in preparation for the Skydance transaction, but even without a pending merger, Paramount would have had to shed jobs.

A nostalgic farewell

The shifting fortunes of the pay TV industry were also reflected in the news that Broadcasting & Cable magazine will end its run after more than 90 years. The demise of this weekly business magazine sparked a wave of nostalgia among those in the close-knit community. Many found their first jobs in TV by perusing the listings in the back pages of B&C.

The invisible hand of the market

The dramatic turn for cable was foreseeable. The market is always in motion, and nothing stays the same for long. When AT&T struck its ill-fated deal to buy Time Warner in 2016, TNT and CNN were gold-plated assets. But cable channels, particularly those focused on general entertainment, were easily replaceable by streaming platforms once consumers got comfortable with the technology and the on-demand format.

The local-national broadcast network construct, with its enviable reach and regional specificity, is not so easily replicated. There’s a lesson here in how to measure staying power and lasting value.

A new chapter

As we navigate this tumultuous time in media, there’s much to learn. The cable business once seemed invincible, bringing the multichannel revolution into America’s living rooms. Nearly 30 years later, broadcast networks like ABC, CBS, NBC, and Fox are in better shape than their cable counterparts. Heavy-duty sports rights and the unique local-national partnership model keep them healthy.

The 180-degree turn for cable is a reminder that the market is always evolving. The invisible hand is always moving, and the media landscape will continue to shift. The good old days of cable may be over, but a new chapter in the story of television is just beginning.