NEW YORK—A new report from S&P Global Ratings highlights ongoing problems in the linear TV business with a prediction that its decline in the U.S. is “irreversible” and plans by Comcast and other to spin off TV networks “face significant challenges amid secular declines and dis-synergies.”
Last year, Comcast announced plans to spin off its linear TV networks. Meanwhile, Warner Bros. Discovery is in the process of restructuring into two divisions, separating its linear networks from its studio and streaming operations to better position the company for acquisitions or potential mergers.
“Linear TV’s decline in the U.S. is irreversible, but that there is no immediate cliff,” S&P Global noted in its report. “We expect the decline will be a steady one that will take years to reach its final conclusion."
The report also found losses from cord-cutting are moderating, but affiliate license fees will decline by "3% and 7%, depending on the network portfolio.”
In addition, “advertising, the other key revenue stream supporting linear TV, will decline more precipitously than affiliate fees as audience ratings are eroding quicker than the rate of cord-cutting,” the analysts said, with general entertainment networks feeling the worst impact.
They also argued that “sports-focused networks will hold up better (but still decline), with audience ratings and prices for ad inventory stabilizing or even modestly growing for some sports, particularly the National Football League. [Yet] … even the NFL isn't immune from ratings declines—audience ratings for the 2024 NFL regular season declined by 2.2%.”
Spinning off linear networks would create other challenges by separating them from the studios that produce content, leaving the networks vulnerable to rising programming prices. “Ultimately, the networks would just be distribution vehicles; that is, middlemen that package content licensed from third parties into a linear stream and sell those linear streams to the pay-TV distributors,” leaving them “vulnerable to termination of content rights agreements,” the report said.
“The media companies are in a no-win situation,” the analysts concluded. “Every day the companies hold onto their linear TV networks, they become less valuable.”
The networks, though, also produce a significant portion of overall cash flow, and media companies “still depend heavily on the cash flow from their linear TV networks to help fund their other businesses, make investments, and pay down debt,” S&P said. “This dependence will decline over time as the linear TV business continues shrinking and the streaming segment grows scale and profitability, but for now, we view the linear TV businesses as essential to our current credit ratings on these companies.”
