Warner Bros Discovery heaped an additional burden on Netflix's $82.7 billion bid for the movie studio and HBO.
The entertainment company behind the buzzy series "Heated Rivalry" and the film "Wuthering Heights" reported fourth-quarter earnings Thursday that showed profit at its cable channels is deteriorating at a fast pace.
The networks, which include CNN, the Discovery Network and TNT, are not part of Netflix’s deal.
But their worth as a separately traded company is a key component in valuing the streaming service’s offer for the Warner Bros film and TV studios, its library, HBO and the HBO Max streaming service.
Rival Paramount Skydance raised its proposal to buy all of Warner Bros to $110 billion. On Tuesday, the Warner board said it is negotiating with the rival bidder to determine whether the revised proposal could result in a deal superior to Netflix's offer.
Warner Bros Chief Executive David Zaslav did not address the discussions on a call with investors Thursday. Instead, he highlighted his role in sparking a bidding war for the coveted assets.
"We engaged with four bidders, which led to eight price increases, and have thus far achieved a 63 per cent increase in value versus the first offer received in September, delivering significant value to WBD shareholders throughout the process," Zaslav told investors.
Warner's board had previously determined Netflix's offer was superior to Paramount's because investors would also receive the value of its planned spin-off of the television group, Discovery Global.
The division's revenue fell to $4.2 billion, down 12 per cent from a year earlier, and adjusted income dropped to $1.4 billion, a 27 per cent plunge from the same quarter a year earlier.
Such declines affect the value of the TV networks as a standalone business, Discovery Global.
Its closest comparison is Versant Media, the cable and digital assets separated from Comcast earlier this year. Versant's enterprise is worth roughly 3 times its 2025 forecast EBITDA of $2.1 billion.
On the same yardstick, Discovery Global's market capitalization would be approximately $3 billion or a little over $1 per share, assuming $17 billion in net debt.
Add that to Netflix's cash offer of $27.75 per share and it comes in shy of Paramount's bid of $31.
Warner CFO Gunnar Wiedenfels declined to address that comparison. Netflix did not immediately reply to a request for comment. HBO Max continued to grow, helped by series like "Heated Rivalry" and "It: Welcome to Derry."
Warner Bros added 3.5 million streaming subscribers in the quarter, bringing its total number worldwide to 131.6 million.
The streaming group's revenue rose 5 per cent to nearly $2.8 billion, but adjusted earnings fell 4 per cent to $393 million due to the end of an unspecified distribution deal.
"The best thing for WBD shareholders is that it is being sold, because its fundamentals continue to deteriorate," wrote Needham & Co senior research analyst Laura Martin.
Warner's stock was largely unchanged in early morning trading. Zaslav also highlighted the success of the Warner Bros film slate, including "Wuthering Heights," "A Minecraft Movie" and "Superman."
"We love the motion picture business," Zaslav said on the call. "We at the company believe so deeply in the motion picture business, putting movies on the screen for shared experience ... Our commitment to the motion picture business is the core of our company."
Netflix Chief Executive Ted Sarandos has defended his deal for the studio and HBO by affirming his commitment to releasing movies in theaters, a strategy that was never part of Netflix's DNA.
Should Warner Bros board declare that Paramount's deal is superior, Netflix has four business days to revise its offer.
