Shares of Warner Bros. Discovery (NASDAQ: WBD) took a dive today in response to the dispute between Disney (NYSE: DIS) and Charter Communications (NASDAQ: CHTR), the owner of the Spectrum cable network. Disney blocked ESPN and other Disney-owned channels from being shown on Spectrum, signaling a souring environment in the video entertainment industry.
As a result, Warner Bros. Discovery, which makes most of its profit from cable channels like CNN, TBS, TNT, and HBO, finished the day down 12%, while Disney lost 2.4% and Charter gave up 3.6%.
Paramount Global (NASDAQ: PARA), a close peer of Warner Bros. Discovery, was down 9.5% on the news.
The dispute between Charter and Disney arose after the two sides were unable to agree on contract fees, leading Charter CEO Chris Winfrey to say, “The video ecosystem is broken.”
The news comes as entertainment providers are already struggling with the Hollywood writers’ and performers’ strikes as well as slowing growth and a lack of profits in streaming. It relates to a dispute over Disney’s streaming services as Charter wanted to offer ad-supported versions of those services, but Disney refused.
While the conflict doesn’t directly involve Warner Bros. Discovery, it shows that linear TV and broadband partners are also looking to cash in on streaming, which could cut into profits for streamers.
Warner Bros. Discovery has been struggling since the merger that created the company as legacy media companies have found it difficult to navigate the waters in the streaming-first entertainment industry.
Revenue fell on a pro forma basis in its most recent quarter, and it continues to lose money on the basis of generally accepted accounting principles (GAAP).
While the company has some valuable intellectual property, it will at least need the Hollywood strikes to end before it can mount a comeback.
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Jeremy Bowman has positions in Walt Disney. The Motley Fool has positions in and recommends Walt Disney and Warner Bros. Discovery. The Motley Fool has a disclosure policy.
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