Linear TV Network Spinoffs Encounter 'Substantial Obstacles' According to S&P
In the rapidly evolving media landscape, traditional linear TV networks are facing a steep decline, posing significant challenges for media companies. This shift, driven by the rise of digital alternatives, is putting pressure on cable business models and forcing companies to reconsider their strategies.
Market Disruption and Declining Revenues
Linear TV advertising revenues are on a downward spiral as audiences and advertisers migrate to streaming platforms. This disruption is causing cash inflows to dwindle, with companies like Comcast feeling the pinch as profitability in their television business plummets, exacerbated by large losses at streaming services like Peacock.
Asset Redefinition vs. Divestment Dilemmas
Faced with this decline, some companies, such as Paramount Skydance, prefer to redefine and invest in their linear TV brands rather than spin them off. They recognize the value in iconic franchises tied to these networks. However, managing significant broadcast-related debt amid uncertainty about the future of linear broadcasting complicates restructuring decisions.
Balancing Growth Profiles
Linear TV networks generally have slower or negative growth profiles compared to digital ventures. This makes it difficult to unlock full value or justify separation without risking overall portfolio synergies.
Cash Flow Pressure and Sustainability Concerns
The decline in subscribers and ad revenues from linear TV directly reduces cash inflows, raising concerns with credit rating agencies. As businesses become more dependent on less certain streaming revenues and more expensive content agreements, sustainability becomes a major issue.
The Future of Linear TV Networks
If separated from studios, linear networks would essentially become distribution vehicles, or middlemen that package content and sell it to pay-TV distributors. However, these networks still contribute significantly to overall cash flow for media companies.
For instance, Comcast announced plans to spin off its linear TV networks last year. S&P Global Ratings predicts that the decline in the U.S. linear TV business is irreversible, taking years to reach its final conclusion. Despite this, the dependence on linear TV cash flow remains essential to the current credit ratings of media companies.
The restructuring of companies like Warner Bros. Discovery, which is separating its linear networks from its studio and streaming operations, reflects this ongoing struggle. S&P Global has issued a report highlighting ongoing problems in the linear TV business, predicting that losses from cord-cutting will moderate, but affiliate license fees will decline by 3% to 7%, depending on the network portfolio.
Despite these challenges, the NFL's 2024 regular season saw a 2.2% decline in audience ratings, indicating that sports-focused networks may still have some resilience, particularly for the National Football League.
In conclusion, media companies are navigating a complex landscape as they grapple with the economic impacts of declining linear TV metrics, preserve or redefine valued network franchises, manage debt burdens, and make strategic decisions that affect their cash flows and creditworthiness. Some companies resist spin-offs to protect cash flow stability, while others consider these moves amid uncertainty and the need for portfolio optimization.
- As audiences and advertisers migrate to streaming platforms, linear TV advertising revenues are declining, putting pressure on media companies like Comcast.
- Faced with this decline, some companies are choosing to redefine and invest in their linear TV brands, recognizing the value in iconic franchises tied to these networks, while managing significant broadcast-related debt.
- Managing cash flow amid uncertainty about the future of linear broadcasting and the rise of digital ventures complicates restructuring decisions for media companies.
- The decline in subscribers and ad revenues from linear TV directly reduces cash inflows, making sustainability a major issue for media businesses.
- If separated from studios, linear networks would essentially become distribution vehicles for content, but they still contribute significantly to overall cash flow for media companies.
- The future of linear TV networks remains complex, with sports-focused networks like the NFL showing some resilience,while media companies balance their growth profiles, manage debt burdens, and make strategic decisions affecting their cash flows and creditworthiness.
