Warner Bros. Discovery (WBD.US) posted a sharp decline in second-quarter revenue, weighed down by the loss of NBA broadcasting rights and weak box office performance. The conglomerate, which owns HBO, TNT, Cartoon Network, and CNN, reported Thursday that revenue dropped 11% year-over-year to $8.7 billion, falling short of the $9.2 billion consensus estimate. Adjusted EBITDA fell 4% to $1.88 billion, in line with expectations, while earnings per share came in at $0.06, beating forecasts.

Streaming growth fails to offset legacy business weakness. The company's largest division, television networks, recorded a 17% revenue decline to $3.99 billion. Advertising revenue plunged 27%, driven by the absence of NBA games and weaker overall viewership. EBITDA for the segment fell 4% to $1.45 billion. Film studio revenue plummeted 39% to $2.3 billion, partly due to lower sales from television programs and movie tickets, with EBITDA cratering 89% to $96 million. Releases like Mortal Kombat 2 and Supergirl failed to replicate the box office success of last year's hit A Minecraft Movie. The studio's major titles for this year are heavily weighted toward the second half, with blockbusters such as The Diggers and Dune: Part Three expected to boost performance.

Streaming remained a bright spot, with revenue climbing 10% to $3.08 billion and EBITDA surging 75% to $512 million. The international expansion of HBO Max and original content like Pittsburgh Medical Frontline, Euphoria, and House of the Dragon drove subscriber growth. The streaming business is also central to Warner Bros.' $110 billion merger agreement with Paramount Sky (PSKY.US). Integrating HBO Max with Paramount+ would better position the combined entity to compete with streaming giants Netflix and Disney.

The $110 billion merger remains uncertain. After receiving conditional approval from the European Union last month, the deal cleared another key regulatory hurdle on Thursday when the UK's Competition and Markets Authority (CMA) approved it, concluding it would not harm competition in the British market. The CMA stated, "The evidence shows that Paramount will continue to face sufficient competition across film and TV production and distribution, children's programming supply, and streaming services." However, the transaction still faces legal obstacles in the U.S. A federal judge in California has set a 12-day trial beginning March 2, 2027, to determine whether the merger violates antitrust laws. A lawsuit filed by 12 states, led by California Attorney General Rob Bonta, argues that combining Paramount and Warner Bros. would stifle competition in film and television production and distribution. Paramount has agreed to pause the deal until June 2027. If the transaction is not completed by September 30, Paramount will pay Warner Bros. shareholders $650 million in quarterly penalties until the deal closes. If the merger fails, Paramount must pay Warner Bros. a $7 billion breakup fee, which would be covered by the family of Paramount CEO David Ellison, son of billionaire Larry Ellison. As of writing, Warner Bros. Discovery shares were up 0.7% in pre-market trading, while Paramount shares rose 0.23%.