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Warner Bros Discovery’s credit rating has been lowered to ‘junk bond’ level by S&P Global Ratings, signifying a potential financial crisis for this entertainment giant. The downgrade is due to the persistent decline of its cable television business, which overshadows any progress made in streaming services.

On Tuesday, S&P lowered WBD’s credit rating to BB+, placing it below the investment grade and into a category known as speculative or junk. This downgrade is due to the agency’s observation of persistent declines in revenue and cash flow from its linear TV operations. Moreover, they predict that WBD’s debt-to-equity ratio will exceed their 3.5x investment-grade benchmark until at least 2027.

According to the report, S&P does not anticipate Worldwide Business Development (WBD) to significantly speed up debt reduction by selling assets. Instead, they are likely to focus on investing in their expanding ventures, a strategy that should prolong the process of reducing debt.

This setback to Warner Bros Discovery’s reputation could potentially increase the costs involved in securing funds for future ventures.

$38 Billion in Debt and No Lifeline in Sight

Towards the close of Q1 2025, WBD held a substantial $38 billion in total debt. After making a $2.2 billion repayment within the same period, the debt figure saw a minor decrease. However, S&P forecasts that WBD’s adjusted EBITDA will stay around $9 billion per year for the near future. This projection leaves WBD with a high level of debt relative to its earnings.

The key issue plaguing the Warner Bros Discovery credit rating? Cable.

Although streaming services are thriving and live performances provide occasional increases, Warner Bros. Discovery’s global collection of cable channels such as TNT, TBS, and CNN are experiencing significant losses. S&P predicts that EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) for these networks will drop by 20% in 2025, largely because of decreasing advertising revenues, dwindling viewership, and escalating costs associated with expensive sports deals like the NBA.

As a discerning film critic, I must confess that the forecasted 11% decline in WBD’s linear TV advertising revenue for this year comes as quite a shock. Given the current state of turmoil within the media industry, this figure seems particularly harsh.

Streaming Gains Still Can’t Save the Ship

In contrast to some challenges it may be facing, Warner Bros Discovery has demonstrated robust progress within its direct-to-consumer (DTC) division. For instance, the company saw a significant leap in streaming EBITDA, going from $103 million in 2023 to a substantial $677 million in 2024. Analysts at S&P expect this figure to soar even higher to approximately $1.3 billion by 2025.

The number of subscribers for WBD is increasing significantly. In the first quarter alone, they added 5.3 million new streaming subscribers, bringing their total worldwide subscriber base to 122.3 million. As part of a strategic shift in branding, the company plans to rebrand Max as HBO Max again, aiming to strengthen the prestige linked with its premium content.

Nevertheless, S&P forecasts a potential decrease in streaming profitability by 2026, attributable to rising content expenses, promotional expenditures, and new market entrances like the planned expansion into the United Kingdom.

From my perspective as a film enthusiast, the growth in streaming platforms is undeniable, yet it’s not accelerating at a pace or with the cost-effectiveness required to counterbalance the substantial strain on traditional media outlets.

Gaming Division in Turmoil: Cancellations, Closures, and Missed Opportunities

Although not explicitly mentioned in S&P’s downgrade advice, Warner Bros Discovery’s gaming division has unexpectedly emerged as another area of concern contributing to the company’s overall financial turmoil. Previously viewed as a promising avenue for growth, it has unfortunately turned into a series of expensive failures, abandoned projects, and strategic uncertainties instead.

In early 2025, Warner Bros. Discovery (WBD) decided to scrap the eagerly awaited “Wonder Woman” video game, a project that had been underway at Monolith Productions, renowned for “Middle-earth: Shadow of Mordor.” According to industry experts, creative differences and financial overspending were the reasons behind this decision. It was reported that the live-service model being imposed on the game conflicted with Monolith’s initial plan for a standalone storyline in a single-player setting.

The cancellation significantly hindered Warner’s aspirations for making Wonder Woman a leading video game franchise, comparable to Spider-Man, within the PlayStation platform.

Following this, Monolith Productions was discreetly closed down, resulting in job losses for hundreds of developers and sparking more speculation about Warner Bros Discovery’s capacity to handle their game library effectively.

Following the release of “Suicide Squad: Kill the Justice League,” a live-service game launched in early 2024, came a series of disappointments. The game faced intense criticism for its repetitive gameplay, aggressive monetization tactics, and lack of an offline mode. Unfortunately, despite being associated with one of DC’s iconic brands, it failed to keep players engaged and was generally perceived as a significant financial flop, costing the company over $200 million.

Despite the significant success of Hogwarts Legacy, being WBD’s most successful game in recent times, there hasn’t been any proper sequel or expansion yet—an unexpected pause for a company seeking steady income. Simultaneously, the management at WB Games persists in pursuing daring live-service strategies, which have previously caused setbacks for other publishers.

The situation is uncertain and unstable, overflowing with intellectual property possibilities yet plagued by inadequate implementation, conflicting ideas, and doubtful leadership decisions. It didn’t directly lead to a devaluation rating, but for sure, it isn’t aiding Warner Bros. Discovery in its recovery from it.

Company Split May Be Looming… and Dangerous

Warner Bros Discovery has recently divided itself into two internal sectors: one focusing on streaming and studio operations, while the other concentrates on global linear networks. David Zaslav, CEO, presented this move as a means to “generate substantial value for shareholders.” However, the ratings agency expressed their perspective on this matter in a straightforward manner.

S&P stated that splitting the company into a growth-focused entity and a global linear networks division would be viewed negatively.

As a passionate movie buff, I’d put it this way: While it may not show in its current standing, splitting up the company could potentially weaken its overall might and introduce fresh challenges for those who lend to it.

Zaslav’s Gamble Isn’t Paying Off

As a seasoned film critic, I find myself reflecting on the recent credit rating downgrade faced by Warner Bros Discovery at a pivotal juncture in their journey. CEO David Zaslav stands at the helm, steering the company towards a promising era of increased profitability. His approach is marked by strategic spending, consolidation within the streaming sector, and a shrewd theatrical strategy – all aimed at navigating this entertainment titan into uncharted waters of financial success.

But Wall Street seems unconvinced.

Although competitors such as Netflix and Amazon’s Prime Video are prospering by adopting simplified, subscription-focused strategies, Warner Bros Discovery appears to be a hybrid of traditional and modern media, with limited avenues for shedding excess baggage.

Due to S&P’s recent downgrade, it becomes more challenging for the company to restructure or obtain new financing, as well as refinance its current debts. Additionally, with Moody’s and Fitch rating WBD one step above junk status, this action from S&P might lead to additional downgrades in the near future.

In such a scenario, Warner Bros. Discovery (WBD) might find itself in a severe financial predicament at a time when it’s about to lose NBA broadcasting rights, witness decreasing viewership, and undertake global expansions that require funds it may struggle to obtain affordably.

Final Thoughts

It’s now official according to Wall Street: The financial stability of Warner Bros Discovery, similar to its credit rating, is facing significant threats. With a declining cable business, costly transition to streaming services, and a growing debt burden that seems unsustainable, a downgrade to ‘junk’ status might be the start of more troubles.

Stay tuned. This story is far from over.

2025-05-21 19:05