The whole idea of an “impairment” write down is a neat trick becoming more popular as companies see values decline. It was most notably done by Ebay in writing off $1.4 billion in lost value from its purchase of Skype. An impairment loss can only be recognized if the carrying amount is not recoverable and the carrying amount exceeds fair value.
Without getting too in-depth, since this is the exact reason why I never made it as a corporate accountant, the bottom line is that at cost, there isn’t much value left in The CW. If Time Warner’s shareholder equity is now valued at $39 million, that should make 50% partner CBS’s the same (their Annual Report wasn’t as concise and The CW doesn’t publicly release its financials). By losing that much value in a short period of time, that’s compelling evidence that network hasn’t managed its assets well thus far nor has much to work with for the future.
Financials Aside…
One doesn’t need a Time Warner financial statement though to see the obvious. To put it blankly, the ratings suck. The CW average viewers as of the first quarter 2008 were just 2.3 million viewers. This is a steep decline from the two networks that merged to form The CW; UPN and The WB. Each pulled an average of three million viewers and the grand hope was that by combining viewership, the ratings would combine to six million. Ratings for their target demographic, 18-34 year olds, was down 23% compared to last year and over 50% in the 18-49 group. Many predict overall viewers will continue to decrease in the fall because of the loss of their top rated show, Friday Night Smackdown. The CW won’t lose money from losing the show since they don’t need to pay the large fee anymore to the WWE, not to mention Smackdown does poorly in their target demographic and The CW has trouble selling ad space. Still, any drop of overall viewers at a network that’s losing viewers is a red flag to advertisers.
The news across the board is bad. Reality shows, a usual proven winner, are failing. Their top show, America’s Top Model, is down 29%. Beauty and The Geek, usually a great performer in the past, is down 54% this year. Pussycat Dolls: Girlicious and Crowned were ratings disasters, and so far the numbers are weak for Farmer Takes A Wife. It’s interesting that their fall schedule will only feature two hours of reality.
But, scripted shows aren’t doing well either. Their number one scripted show, Smallville, started the year at 5.2 million viewers. Recently the show hit a series low at 3.6 million. Same with number two, Supernatural, which saw a season high at 3.3 million before going on hiatus in February, only to come back to an audience of 2.2 million in late April. Everybody Hates Chris, the number one scripted comedy, started the year on Monday nights at 2.44 million. The latest episode, at their new time on Sunday nights, only got 1.2 million. Even Gossip Girl, the show being hyped as the hot new show of the future, only drew in 2.12 million viewers last week. The fall premiere, their highest rated show by far, got 3.5 million.
Article comments
1 - Jeffrey
Excellent analysis! Really enjoyed reading it, and you really pulled a lot of divergent info together really well.
I think the only thing you missed was not drowning Dawn Ostroff in blame for her years of mismanagement at both the WB and the CW.
2 - DG
The new Tribune honcho Sam Zell must be furious at this new lineup. He's already on the record as saying the CW needs to do a better job of delivering 18-49s to his prime-time newscasts in NY, LA, Chicago, etc. Wonder if he's consulting with lawyers on ways to get out of the affiliation contract...