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Thursday, 23 February 2023

Hollywood Reporter: Warner Bros. Discovery Posts $217M Streaming Loss, Hits 96M Subscribers

Story from Hollywood Reporter:

Warner Bros. Discovery reported 96.1 million streaming subscribers in its latest quarterly earnings report, up from 94.9 million last quarter. And while it still posted streaming losses (the division lost $217 million), its losses in the direct-to-consumer segment were cut by nearly 2/3 compared to its fiscal Q3 last quarter, when it lost more than $600 million in the segment. The company also beat Wall Street expectations on free cash flow.

And there were signs in the report that streaming losses were poised to turn around relatively soon, with operating expenses in the segment declining double digits on a year-over-year basis.

Warner Bros. Discovery reported earnings of $11 billion and a loss of $2.1 billion. The large loss was mostly due to continued restructuring charges and writedowns tied to the merger.

With the restructuring and writedowns now largely complete, the company is now turning to execution, trying to right the ship in streaming in a push for profitability, while trying to keep its linear and theatrical businesses steady.

“Last year was a year of restructuring, 2023 will be a year of building. And off we go,” Warner Bros. Discovery CEO David Zaslav told analysts in the company’s earnings call. “We have a great hand, and we are doing a lot right. That said, there is still more that we need to get right, and we are hard at work.”

Advertising revenue in fiscal Q4 was $2.3 billion, while distribution revenue was $5 billion. The company took $1.2 billion in restructuring costs.

Looking forward, Zaslav said that leverage will fall below 4X by the end of the year.

Warner Bros. Discovery’s linear channels felt the brunt of the advertising business’ troubles, declining 17 percent year over year. With other TV channels having the NFL, college football and the World Cup, some marketers may have shifted spend elsewhere in the quarter.

Zaslav said “cyclical headwinds and ongoing secular challenges” hit the linear ad business, adding that “we are still in the early stages of bringing this comprehensive portfolio together.”

“We also made a decision in the upfront to drive price instead of extra volume,” Zaslav added. “We were able to drive price significantly more than our peers, but in order to do that we took less volume than we could have.”

Still, the networks business posted $5.5 billion in revenue, and $2.5 billion in profits.

And Zaslav also called out CNN specifically, saying that “we want it to be the place for fact-based reporting and discourse” with a “more inclusive range of voices and viewpoints,” citing more than 70 Republicans that appeared on CNN during the House Speakers race.

“We must get it right, nowhere is this more important in my view, and we are on the right path,” he added.

In streaming, total revenues were $2.5 billion, with the aforementioned $217 million loss. Advertising revenues were up 76 percent year over year thanks to more subscribers in its ad-supported tiers.

Warner Bros. Discovery will roll out its combined HBO Max-Discovery+ service at an event April 12.

“We have a clear attack plan, where we will drive this across the country and into markets around the world with conviction,” Zaslav said.

And Zaslav confirmed that the company will keep Discovery+ as a standalone offering.

“For those that have Discovery+ right now, churn is very low and it is profitable,” Zaslav said. “For those that are happy paying $5 or $7 … our strategy is no sub left behind. We have profitable subscribers that are very happy with the offering of Discovery+, why would we shut that off?”

And Warner Bros. Discovery will eventually launch its own free ad-supported streaming service. “We can create a Tubi or a Pluto without buying content from anybody,” Zaslav said.

The studios division had revenue of $3.8 billion, and posted a profit of $768 million.

Warner Bros. Discovery CFO Gunnar Weidenfels said that the company is also looking into selling potential assets. “There are some opportunities that I am looking at below deck,” he said in response to an advertiser question, with Zaslav adding that any sales would be “non-strategic.”

And Weidenfels says the company now sees $4 billion in cost savings tied to WarnerMedia merger, double its original estimate.

© 2023 The Hollywood Reporter, LLC.