Warner Bros. Discovery (NASDAQ:WBD) continued trending lower on Monday amid concerns that the media conglomerate could lose its rights to broadcast National Basketball Association (NBA) games. WBD stock is currently hovering near its 52-week low of $7.34 and has declined by more than 35% over the past year.
WBD currently holds the rights to broadcast these games along with Disney’s (NYSE:DIS) ESPN. Media companies are eyeing the NBA league’s next round of media packages, set to take effect after the 2024-2025 season.
According to a Wall Street Journal report, Disney and Warner currently pay $1.6 billion and $1.2 billion yearly for television deals, respectively. While WBD has reportedly been unable to reach a new agreement before its exclusive negotiation period ended, Disney has been able to renew the deal by increasing its payment from $1.5 billion a year to $2.6 billion.
NBCUniversal Eyes NBA Broadcast Deal
However, Comcast’s (NASDAQ:CMCSA) subsidiary, NBCUniversal, is exploring securing broadcasting rights for the games and plans to pay around $2.5 billion annually, as reported by The Wall Street Journal.
It has become increasingly important for legacy media companies like Comcast to retain broadcasting rights for live sports to keep subscribers amid cord-cutting and a shrinking advertising market. Additionally, exclusive coverage of sporting events can serve as a major attraction for subscribers, aiding NBC’s Peacock streaming service in both growth and retention.
Broadcast Rights Loss: A Setback for WBD
Five-star rated Citi analyst Jason Bazinet believes that if WBD loses the rights to broadcast NBA games, its adjusted Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) could suffer a $250 million hit. The analyst stated that this would result from an annual ad revenue loss of $270 million and a potential 45% decline in TNT’s affiliate fees.
Bazinet has a Buy rating and a price target of $14 on the stock, implying an upside potential of around 76% from current levels.
Even Bank of America analyst Jessica Reif Ehrlich seemed to share the same view and considers the renewal of NBA rights crucial for WBD’s future, especially since TNT commands the highest carriage fees at around $3 per subscriber among all its cable networks. The analyst added that if WBD loses these rights, it could impact the company’s ability to maintain affiliate fees in future negotiations.
Affiliate fees are the fees paid by pay-TV providers to network owners for carrying their channels.
Is WBD a Good Buy?
Analysts remain cautiously optimistic about WBD stock, with a Moderate Buy consensus rating based on nine Buys, seven Holds, and one Sell. The average WBD price target of $13.61 implies an upside potential of 70.6% from current levels.
