David Zaslav just quieted some Wall Street critics as Warner Bros. Discovery shows it's fine without the NBA
- Despite what some analysts predicted, the sky hasn't fallen at Warner Bros. Discovery without the NBA.
- The company's new deal with the cable giant Comcast is better than some anticipated.
- Those at WBD are thrilled to have saved money on NBA rights while avoiding a carriage-fee disaster.
It looks like Warner Bros. Discovery didn't "have to have the NBA" after all.
A year and a half after WBD's CEO, David Zaslav, gave that quote, the NBA's broadcast partner of four decades was outbid by Disney's ESPN, Comcast's NBC, and Amazon for the league's next TV deal, valued at $76 billion over 11 years.
Zaslav was widely chastised for allowing NBA rights to slip through his fingers after appearing indifferent about their value at a time when live sports seemed like it could be the cable bundle's only hope. Some media analysts said WBD underestimated NBC's bid and that the value of its TV networks would take a major hit without the NBA.
But the worst didn't happen. The media conglomerate has managed to secure higher rates for most of its TV networks from Charter and Comcast, the two largest cable providers in the US, people familiar with the terms of the deals told Business Insider.
The Comcast deal is particularly notable, as some in the industry expected the cable giant to drive a hard bargain. Comcast and WBD surprised the industry on Monday when they announced they'd reached a carriage-renewal deal. The financial terms weren't disclosed, but people familiar with them told BI that Comcast's affiliate fees for TNT would remain flat and that it would pay slightly more for WBD's other networks. In return, Comcast customers in the US, the UK, and Ireland can get Max for free.
This new deal, especially TNT's fees remaining flat without the NBA, looks like a win for Zaslav that certainly wasn't guaranteed just a few months ago.
No NBA, no problem?
Before the Charter and Comcast deals were announced, the general feeling in the media world was that pay-TV providers could play hardball and demand lower affiliate fees for WBD's networks, especially an NBA-less TNT. Shrinking affiliate fees and weaker ad revenue from lower ratings could be disastrous for debt-riddled WBD.
Instead, in mid-September, WBD struck a deal with the cable giant Charter in which it secured a flat rate for TNT and higher rates for other channels like CNN, HGTV, and Discovery. However, doing so took a key concession: giving away its Max streaming service.
The Charter deal was heralded as a success, with Zaslav a "clear winner" in the eyes of the veteran media analyst Rich Greenfield of LightShed. Greenfield had said that if WBD could fend off a major decline in affiliate fees in its next deals, then "investor fears are misplaced."
Still, another major test was ahead: WBD's negotiations with Comcast. Some observers thought WBD got a sweetheart deal from Charter since the cable legend John Malone was on the board of both companies, but they expected Comcast would take no prisoners. LightShed's Brandon Ross predicted that Comcast CEO Brian Roberts would be aggressive in negotiations.
The terms WBD and Comcast agreed to are remarkably similar to WBD's deal with Charter, and each came together more than a year before key deadlines. "Most favored nation" clauses mean cable providers can get similar terms as their competitors, but some analysts thought Comcast would get a better deal that Charter could match in retrospect.
Company insiders seemed pleased with the deals, though the WBD side seemed especially thrilled. Some people within the company believed they'd been vindicated after taking heat for losing the NBA.
Those with knowledge of WBD's thinking said the company could actually be better off without the NBA now that it avoided carriage-fee cuts. Instead of paying up for the NBA, whose ratings are down so far this season, the company can invest in other sports or pay down debt.
Unlike Amazon or Comcast, which have other businesses that can help subsidize their NBA rights, WBD would have needed its NBA investment to pay for itself โ mainly through carriage fees, advertising revenue, and subscriptions to Max, which airs the NBA on TNT. And the company wasn't sure that would be possible if it paid significantly more money for fewer games.
So while the WBD hoped to keep the NBA at the right price, it was prepared to walk away โ hence Zaslav's surprisingly blunt quote. By opting for plan B, WBD sent the message that its priority was keeping costs in check and paying down debt.
WBD shares are up by 58% since mid-September, suggesting that the market is rewarding the company for passing on the NBA โ even though doing so was controversial.