Profits plummet on CNN as valuations plummet

One of the first moves that fledgling Warner Bros. Discovery made when it took over CNN was the shutdown of CNN +, the fledgling streaming service that has been billed as the network’s bridge to the future.

The next month, when Chris Licht took over as president of CNN, he told employees in his first city hall meeting not to worry about ratings, a mainstay of television news used as a benchmark for revenue and relevance.

Now, three months into Mr. Licht’s tenure, the network is facing big questions about how to continue expanding its business with its dead moon streaming service and traditional television business in structural decline.

According to projections from S&P Global Market Intelligence, CNN’s profitability is set to drop to $ 956.8 million this year. That would mark the first time since 2016 that the network has dropped below $ 1 billion in profit, according to three people familiar with its operations.

Two people familiar with CNN’s operations said the network’s initial profitability target for 2022 was $ 1.1 billion, which Mr. Licht is on track to miss by over $ 100 million. But another person familiar with the matter said that from the company’s executive accounting, Mr. Licht was on track to reach a profitability target of around $ 950 million for the year, as the initial budget of the company network does not take into account the losses associated with the launch of the CNN + Streaming Service.

However, the numbers are crunching, as the hunt for new revenue has begun within CNN. To help solve the financial conundrum, Mr. Licht reached out to Chris Marlin, a longtime friend who was recently an executive at Florida home builder Lennar. Mr. Marlin – whom some CNN employees have started calling “Fish Man”, a take off on his last name – had no experience running a cable news network, having worked at law firms Foley & Lardner and Holland & Knight.

Mr. Marlin has launched a number of revenue-generating ideas since joining CNN, including extraordinary advertising deals with major tech companies like Microsoft. Mr. Marlin also mentioned the sale of sponsorships to corporate subscribers, the extension of the CNN brand in China, and the expansion of CNN Underscore, an e-commerce initiative.

The CNN parent also cut expenses. In July, CNN employees received a revised travel and expense policy that, among other things, limits spending on job celebrations for senior vice presidents and below $ 50 per person (“no limit for the CEO of WBD “, reads the policy). And Mr. Licht has found ways to make coverage cheaper, including the recent decision not to send a US-based special events team to Queen Elizabeth II’s Platinum Jubilee.

Mr. Licht, who took over CNN in May after a corporate merger made Warner Bros. Discovery its parent company, has been trying to sell his staff on a viewing for the network that isn’t tied to traditional television viewing. During an employee meeting his first week, Mr. Licht said CNN would generate revenue by offering advertisers the “pristine brand” of the network, not just the simple audience size, according to a record of his observations obtained from the New York Times.

“I don’t want producers to make decisions based on what they think it will evaluate,” said Mr. Licht, according to the tape.

A CNN spokesperson said Mr. Licht was also focused on expanding the network’s traditional television audience, describing his recommendations to producers as “editorial guide” rather than “business strategy”. The spokesperson said that Mr. Licht has not yet put his mark on the network’s programming, adding that Mr. Licht expects the network’s profits to increase in 2023.

Ratings have fallen from Trump-era levels in cable news, but dips on CNN are particularly pronounced. The network attracted an average of 639,000 prime time people this quarter, according to Nielsen data, down 27% from a year ago. This is followed by MSNBC, which is down 23% in prime time over the same period, and Fox News, where audiences are up about 1%.

CNN has spent millions covering the war in Ukraine, two people familiar with its operations said, and the network is still paying some costs associated with CNN +, such as the salaries of high-profile reporters like Chris Wallace and Audie Cornish. , which also weighed on the bottom line.

The network is trying to cover the costs associated with CNN + by selling some of the programming created for the streaming service to other providers, including HBO Max, which also owns Warner Bros. Discovery.

Executives at CNN’s parent company are scrutinizing the media empire – which includes Turner cable networks and channels like Food Network – to find roughly $ 3 billion in cost savings.

But Mr. Licht told employees at the May city hall meeting that he didn’t expect Warner Bros. Discovery to force further layoffs on CNN after CNN + closed.

“Nobody told me, ‘You’re going to have to go cut this,'” said Mr. Licht, according to the tape. “I think there’s a keen understanding that they don’t know our business.”

Most of CNN’s revenue comes from long-term subscription deals with cable companies and traditional television advertising revenue, said Steve Cahall, senior analyst at Wells Fargo. When those advertisers make spending decisions, they’re primarily concerned with total audience size, Cahall said.

“If the strategy offers more coverage, that is, more valuations, it’s probably a better business,” he said. “If it offers less coverage, if it turns out the center is a tight place to be in America these days, then that’s a less viable business strategy.”

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