Warner Bros Discovery Q4 Revenue Slips On Ad And Studio Softness; Company Touts “Significant Operating And Financial Gains” In Streaming

Warner Bros Discovery revenue fell 11% to $11 billion (or a drop of 9% when foreign exchange fluctuations are excluded), mostly due to advertising softness and tough studio comparisons.

EBITDA also tumbled 5% to $2.6 billion. Shares in the media giant shed as much as 5% in after-hours trading as investors digested the decidedly mixed report, though they later rebounded to positive territory.

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On the plus side for the company, DTC losses narrowed and free cash flow improved, with those metrics among those the company is highlighting as it forges ahead with a massive revamp. In the earnings release, CEO David Zaslav pointed to “significant financial and operating” gains in streaming during the quarter. Total subscribers (including linear HBO) gained 1.1 million to 96.1 million, slightly undershooting consensus estimates.

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The DTC segment took in revenue of $2.45 billion, only about 5% of which came from advertising. (The mid-2021 launch of HBO Max with Ads had been a key priority of WarnerMedia prior to its merger with Discovery, but results from the rollout of the cheaper tier have not been articulated in any detail as of yet.) On the bottom line, adjusted EBITDA improved 13% to a loss of $217 million in the period.

Results were reported on a pro-forma basis, and will be for at least two more quarters, given that the merger of WarnerMedia and Discovery closed in April 2022.

Sales were light versus Wall Street consensus ($11.23 billion) on weak advertising (down 17%) and tough comparisons with licensing revenue from last year. Net losses were inflated by previously announced restructuring costs. Much of the restructuring as the company has pursued a stated objective of $3.5 billion in cost savings, with major programming like onetime HBO tentpole Westworld being pulled off of the company’s owned platforms. Zaslav has steered WBD toward a more open-minded approach to content licensing and Westworld is slated to become an anchor tenant on a planned FAST launch. Silicon Valley, in a similar initiative, is airing on TBS.

WBD is planning an event on April 12, at which execs will lay out their rebranding and streaming strategy as HBO Max and Discovery+ unite. After spending months talking up the streamlining of two apps into one, the company decided this month to continue offering Discovery+ as a stand-alone service as the merged entity reaches the market. WBD has been a leading advocate of Wall Street’s new religion of streaming profitability, as opposed to revenue and subscriber growth.

The message of the Zaslav-led conglom now is that it’s making solid progress on a major overhaul. It’s been painful, with layoffs and scuttled content for $5.3 billion in total restructuring charges through 2024, and an anticipated $3.5 billion in cost savings. The WGA recently slammed Warner-Discovery as “the latest disastrous merger to demonstrate the harms of consolidation, and particularly the threat to diversity when gatekeepers combine to increase their power.”

The Networks unit reported a 17% drop in advertising revenue, to $2.23 billion. The company blamed the downturn on declining viewership of domestic general entertainment networks and soft
advertising markets, mainly in the U.S.

Studios saw revenue drop 23% to $3.8 billion. Content revenue fell 24%, excluding foreign-currency effects, due to lower TV licensing, and, to a lesser extent, lower games and home entertainment revenue.

TV licensing deals were down from the year-earlier quarter. Games and home entertainment revenues saw adverse comparisons with Covid-fueled demand in the prior year. And home entertainment sales felt the pinch from fewer new theatrical releases in the current year (Black Adam last quarter, compared with the 2021 bounty of Dune, The Matrix Resurrections, King Richard, and The Many Saints of Newark. Windows a year ago, it’s worth noting, were far more compressed than they are now, with the 2021 Warner slate going day-and-date to theaters and HBO Max, with other windows following the 30-day Max streaming exclusive.

Free cash flow, or the cash left from revenue after paying all financial obligations, beat consensus at $2.48 billion, compared with $784 million. Other media congloms like Paramount and Disney have posted negative free cash flow for the latest quarter as they continue to fund their streaming ambitions. WBD’s asset mix is unique, arguably, given that HBO Max launched on top of existing subscriber outlets and has been offered at no extra charge to linear subscribers to HBO.

Gross debt, a concern for many investors, stood at just shy of $50 billion. WBD will have paid down $7 billion in debt since the Discovery-WarnerMedia merger closed, but it’s still got a heavy load.

Wall Street in recent months has switched to a glass-half-full sentiment on the company’s prospects, with the stock up over 60% year to date, reversing losses from 2022.

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