Warner Bros Discovery has been laser-focused on developing its streaming business. Even since David Zaslaw took the helm as CEO, he has prioritized free cash flow so that the business can be profitable and efficient. But the recent quarterly earnings report indicates that its streaming service lost $217 million despite subscriber count rising to 94.9 million last quarter.
In December 2022, the CEO set down some hard targets as a hard look at the combined company’s finances revealed that Warner Bros Discovery’s total debt amounted to around $50 billion. The company has to find a way to pay off close to $5billion by the end of 2024, and declining profits make it that much harder.
To pay down any debt, a company needs good cash flow and it is clear that Discovery is struggling. The bright spot on the horizon is that its subscriber base is growing but amidst stiff competition the tide might turn anytime.
The current quarterly earnings report showed $11.01 billion in fourth quarter revenue, missing analyst estimates, and resulting in a drop in shares.
Warner Bros Discovery Quarterly Earnings: The Good and the Bad
On February 23, Warner Bros Discovery posted its fourth quarter revenue. The company posted revenues of $11.01 billion against the estimated $11.36, as per Refinitiv.
Loss per share stood at four times the expected amount at 86 cents vs the estimated 21cents.
The losses incurred reflect a decline in ad revenue as the media industry deals with fears of an impending recession.
Big players including Walt Disney Co’s Disney+ and Paramount Global’s Paramount+ are all expanding overseas and have provided stiff competition to Warner Bros Discovery Inc’s HBO Max and Discovery+.
After the merger was completed, David Zaslav admitted that the media company will work to reduce its debt and initiate restructuring to cut costs. In the last few months, the company has had to contend with restructuring costs while pushing its streaming service towards profitability.
In a press release on the quarterly earnings, President and CEO of Warner Bros Discovery, David Zaslav said, “We’re seeing strong momentum across the enterprise, including our exciting long-term plans for DC Studios, the historic success of our latest HBO series The Last of Us, the significant financial and operating gains in DTC, and the record sales of our newest game Hogwarts Legacy. And with our unparalleled portfolio of assets and IP, a growing roster of exceptional creative talent, and some of the buzziest storytelling in the industry, we believe we have repositioned our businesses to take full advantage of the many opportunities ahead.”
The company announced on Thursday that revenue for its streaming segment was up by 6%, as it added subscribers in ad-supported tiers. Warner Bros also raised prices for its HBO Max subscription last month. It is, however, too early to tell whether it will throttle its growing subscriber base.
The company’s streaming subscribers will have a long wait but are in for a treat as Zaslav admitted that the company has signed multiple deals for more Lord of the Rings movies and plan on releasing new Superman and Batman movies by 2025.
As of February 2023, the company has a market cap of $37.86 billion.
The Advertising Market in Streaming
The advertising market has taken a hit as corporate valuations dropped in line with rising inflation. Big companies have initiated cost cutting measures, starting with reduced ad spends and layoffs, where unavoidable.
In November 2022, Zaslav noted that the ad market was weaker than the 2020 pandemic era. The company has plans to release a combined streaming service that will merge HBO Max and Discovery Plus into a single app, tentatively called Max, by April.
As 2023 is expected to be “a year of building” according to David Zaslav, the combined app might be key to changing Discovery’s fortunes as a solidified customer base can attract bigger sponsors.
The CEO has made no secret of the fact that the media giant wants free cash flow and said as much to investors during a conference in November.
Insider Intelligence noted that before the pandemic, Roku, Hulu, and YouTube made up about half (45.9%) of the US connected TV (CTV) ad market. But with players like Netflix, HBO, and Disney introducing ad-supported tiers, the market has seen further diversification.
As marketeers have multiple options, they are more careful with their purses and the prevailing economic uncertainty has added a layer of extreme caution. As both Netflix and Disney with their gigantic subscriber base have joined the ad market for streaming, Discovery will have to compete with them to attract ad revenue and subscribers.
It is still early days for these streaming giants and 2023 seems poised to offer new experiences and insights on how audiences want to consume content.
