It’s good to be an AT&T executive. The telco’s hometown basketball team the Dallas Mavericks are in the NBA Finals, starting tonight, against the Boston Celtics. More importantly, AT&T is not competing any more for NBA broadcast rights against the likes of Disney, Amazon and Comcast.
AT&T spun off Time Warner two years ago after an ill-fated $100bn acquisition of the media icon in 2018. Chief among Time Warner’s trophy assets was a long-standing contract to broadcast NBA games.
The company, which had also mistakenly bought satellite provider DirectTV years before for $49bn, has been narrowing its strategy towards wireless phone service and fibre internet. That remains capital intensive: AT&T painfully cut its dividend in 2022 in order to divert cash towards investment and debt reduction. But AT&T shares are up 17 per cent in the past year.
Discovery Networks, the merger partner of Time Warner in the spin-off, on the other hand has learned an expensive lesson. Shares in the combined Warner Bros Discovery are down nearly 70 per cent since the spin-merge transaction.
Among its problems this year is the strong possibility it will not renew its NBA package, losing to a combination of Amazon and Comcast’s NBCUniversal. (Disney’s ESPN will keep its existing rights). The overall package could reportedly yield the NBA $76bn over 10 years, 2.5 times annually greater than the expiring arrangement.
Media and telecoms companies are having a hard time generating returns that exceed their cost of capital, after years of debt-fuelled expansion. But content production is increasingly looking the worst segment of all.
WBD boss David Zaslav forecast at the deal’s announcement that ebitda would hit $14bn in 2023. Instead, thanks to huge streaming losses and the Hollywood writers’ strike, it reached just $10bn, leading to an ugly debt to ebitda ratio of 4.3 times.
The Time Warner cable networks remain highly profitable, generating $9bn in ebitda last year. Its station that has the NBA rights charges cable providers $3 a month, an affiliate fee that is only second to Disney’s ESPN. That levy is at risk if the NBA dumps Time Warner. Therein lies the catch-22: the NBA is game-changing programming but Zaslav is constrained by WBD’s messy balance sheet.
Zaslav — who has been attending New York Knick playoff games with his pal Lloyd Blankfein — once infamously stated that Warner did not need the NBA. The comment angered his broadcast talent and likely the NBA.
The prophecy may now be tested. AT&T decided that it did not need the NBA either but, unlike Zaslav, its plan B has a much better chance of success.
