Warner Bros. Discovery has been puton a watch by SP Global for a possible credit rating downgrade over linear TV weakness as the Hollywood studio pivots to the streaming space.

On Friday, the ratings firm revised its outlook to negative, from stable, while affirming a BBB credit rating. WBD, led by CEO David Zaslav, has been under pressure from Wall Street amid industrywide challenges, including advertising softness and cord-cutting, as investors look for a return on an expensive transition from legacy linear TV networks to the digital streaming world. SP cited debt concerns after its financial performance during the first half of the year. The negative outlook reflects our expectations that WBDs leverage will remain elevated in 2024 at 4.4x and decline to 3.8x in 2025, which is above our 3.5x threshold for the rating, the ratings firm said on Friday.

During its latest financial quarter, the media conglomerate posted a $9.1 billion non-cash goodwill impairment charge related to legacy TV networks, and a $2.1 billion pre-tax charge on intangibles and restructuring expenses, as the Hollywood studio struggles to strengthen its balance sheet.

Additionally, the potential loss of the NBA broadcast rights starting in the second half of 2025 could exacerbate an already challenging environment for its linear television segment and further pressure de-leveraging efforts in 2026 and beyond, SP added in its research note. WBD and TNT Sports recently filed a lawsuit against the NBAover the leagues decision to sell a package of rights to Amazon Prime Video and rejecting a matching third-party offer.

SP doesnt see the current challenges in WBDs linear TV networks segment and weakness at its studios division ending anytime soon.

WBD has more general entertainment content on its linear networks compared to Disney and Fox, which are more weighted toward sports and news in Foxs case. Additionally, WBDs studio has experienced significant volatility over the past several quarters due to the lingering effects of the writers/actors strike that concluded in late 2023 and the volatility at its gaming studio due to the lack of repeated success in 2024 compared to 2023 when the Hogwarts Legacy game was a major hit, the ratings firm said.