Yesterday in the glitzy setting of a tent outside the Lincoln Center, coupled with Maroon 5 and holographic weirdness, The CW presented its fall schedule by offering a new concept for them, a vision and a focus.  They finally know what they want to be when they grow up.  It’s called “omgtv”.  That long, uncomfortable pause is no doubt most of us wondering if they’re really serious.   

For months now in the blogosphere and TV forums, many have made their predictions as to when The CW will finally succumb to its short history of bad scheduling and poor management decisions.  After all, most of the press lately has been terrible and the news keeps getting worse.  There’s the constant reports about their free fall in live ratings and financial issues.  They recently ran a sexually charged ad campaign for Gossip Girl, a show with a huge teenage audience, which ticked off the Parents Television Council.  This past weekend one of their top affiliates, Pappas Telecasting Inc, filed Chapter 11, blaming weak advertising revenue and poor ratings at the CW network.  Finally, The CW just sold off its Sunday night programming to Media Rights Capital, relinquishing any programming decisions for that night.  Somehow, amidst all this turmoil, I didn’t get very excited about all their hype over a 90210 remake.       

How Bad Is It? 

I understand the realities of the Internet.  Bad news travels fast, and passionate discussions on the forums about the fate of the network tend to blur the lines between what’s real and what’s speculation.  However, after some digging, I found enough warning signs that should make viewers wonder if it’s time to worry about their favorite CW shows having a home past next season. 

The first big sign came while casually flipping through my recently delivered Time Warner Annual Report for 2007 (Warner Brothers, a Time Warner company, is half owner of The CW).  There were a few hidden statements buried deep on page 123 indicating The CW’s financial issues are more than just rumor.  Trying to summarize what was said while not sounding like I’m giving an “Advanced Corporate Accounting 303” lecture is difficult, but the tricks used to write off the huge investment losses is fascinating.     

Time Warner identified their stake in The CW as an equity method investment.  Their ownership is an investment in the network at cost, and their equity share is listed at 50%.  Instead of reporting earnings and losses, their equity value is listed on the Time Warner financials as a single-line item called “Equity Method Investments”.  The report notes regarding this investment in the CW is as follows:

To date, the CW has not reported profits, and in September 2007 started its second season of programming. Financial results achieved by the network in the current season have been lower than previously estimated and, as a result, The CW’s budget and long-term operating and cash flow plans through 2011 were revised. Accordingly, the Company has determined that its interest in The CW has sustained an impairment and recorded a pretax impairment charge of $73 million in Other income, net in the consolidated statement of operations for the year ended December 31, 2007 to reduce the carrying value of the Company’s investment in The CW.  As of December 31, 2007, the Company’s investment balance in The CW is $39 million.