CNN’s parent company has recently experienced a significant drop in advertising revenue. Warner Bros. Discovery has seen a 13 percent decline in advertising revenue in the most recent quarter as viewership has dropped along with consumer spending.
Discussing the declining ad revenue, the CNN parent company cited “audience declines in domestic general entertainment and news networks and soft advertising markets mainly in the U.S. and, to a lesser extent, certain international markets” as the culprit.
Warner Bros. Discovery CEO David Zaslav recently stated on an earnings call, “A lot of us expected that there would be a meaningful recovery [in the ad market] in the second half of the year and we haven’t seen it, and we’ve needed to figure out how to make up for that.”
This plummeting ad revenue follows initiatives at the company to cut costs across the board within its media entities. The American Tribune reported late last year on the drastic cost-cutting initiatives CNN was specifically taking. Faced with abysmal ratings and exorbitant costs, the network was forced to make some tough decisions.
Then CEO Chris Licht initiated widespread layoffs at CNN in late 2022, citing the network’s various struggles and a challenging economic outlook. In October, Licht warned employees in a memo hinting at the upcoming organizational changes that CNN would see.
“There is a lot more to be done. I am writing to you today to say that over the next several weeks, that work will accelerate. There is widespread concern over the global economic outlook, and we must factor that risk into our long-term planning. All this together will mean noticeable change to this organization. That, by definition, is unsettling. These changes will not be easy because they will affect people, budgets, and projects,” Licht said.
Furthermore, CNN even began downsizing some of its expensive real estate to improve margins. The network was forced to ditch its iconic Hollywood building where the large, red CNN letters had long been a staple of the skyline.
CNN opted to relocate its Hollywood office to a less expensive Burbank building. Reportedly, the move was to improve the liquidity position of parent company Warner Bros. Discovery, which held approximately $50 billion in debt at the time.
The plummeting ad revenue also represents a shift in consumer behavior that is putting media and entertainment giants at a crossroads. For years, these companies have reaped extraordinary margins from TV audiences, providing a reliable source of corporate profitability.
However, in recent years the advent of direct-to-consumer streaming on platforms such as Netflix and Disney+ has driven a mass trend of “cord-cutting,” where consumers no longer pay for cable. In turn, this is driving down the demand for advertising on cable television as the audience is shrinking.
Additionally, the macroeconomic backdrop is not conducive to consumer spending at the moment. The declining ad revenue has also been linked to diminished consumer sentiment amid the historically high inflation over the past couple of years in Joe Biden’s economy.
While consumer spending has held up better than expected in 2023, people have largely spent through the cash buffer they built up during the pandemic. With inflation still above target and interest rates still rising, the economy could see a slowdown, causing a substantial drop in consumption.
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