Warner Bros. Inc. Discovery Hits $50M in Streaming Profits, Says U.S. Streaming Business Will Be Profitable for 2023 – The Hollywood Reporter

Warner Bros. has concluded Discovery monthed March with 97.6 million global streaming subscribers, compared to about 96.1 million at the end of 2022 and before estimates, the entertainment giant revealed in its first-quarter earnings report on Friday. More importantly, its broadcast unit turned in a profit of $50 million, compared to a loss of $654 in the year-ago period and a loss of $217 million in the fourth quarter. Wall Street will note this stream of success as evidence of continued progress toward management’s pledge to make the business sustainably profitable and to deliver on its promise not to chase subscribers at any cost.

“We feel very good about the trajectory we’re on,” Warner Bros. Discovery CEO David Zaslav said of being the first Hollywood giant to post a profitable quarter for its broadcast division, as the entertainment CEOs set their sights on getting their direct-to-consumer operations to turn a profit. He spoke of a “meaningful turn,” adding: “In fact, we now expect our direct-to-consumer business in the United States to be profitable for 2023 — a year ahead of our guidance.”

Wells Fargo analyst Stephen Cahal, in his earnings preview, projected a $76 million stream-line loss, “although we expect losses to increase to $344 million in the second quarter from higher general and administrative sell-offs (expenses) associated with the Max relaunch.”

Warner Bros. Discovery on Friday reported quarterly revenue of $10.7 billion, down 6 percent and roughly in line with analysts’ expectations, while net profit fell below estimates. The company’s first-quarter loss was 44 cents per share, compared to the Wall Street consensus for a loss of 5 cents per share and a swing from last year’s profit of 69 cents per share. However, by eliminating expenses related to the merger of AT&T’s Discovery and WarnerMedia, which created the strength of the segment, the company would have beat agreed-upon earnings estimates.

The company said the company’s quarterly loss of $1.07 billion included $1.81 billion in “pre-tax amortization of acquisition-related intangible assets and $95 million in pre-tax restructuring expenses.”

Increasing free cash flow, a measure of profitability that shows how much money a company has left after meeting its financial obligations, has been a major focus for Zaslav’s team. However, in the first quarter, Warner Bros. Discovery on Friday reported negative free cash flow of $930 million due to interest and sports rights payments.

WBD stock is down more than 5 percent in pre-market trading.

The mega deal that created the company closed just over a year ago, in April 2022. “We’ve gone through some major restructuring and repositioned our businesses with greater precision and focus,” Zaslav said Friday. “And we note that a number of positive points of evidence have emerged, with direct-to-consumer perhaps the most prominent.”

During an earnings conference call on Friday, Zaslav added, “We’ve turned the corner on our broadcast business.”

Many Wall Street analysts have turned bullish on Warner Brothers’ discovery this year amid management’s focus on free cash flow, deleveraging and profitability flows.

The company revealed in mid-April that it would combine its streaming services HBO Max and Discovery+ into the rebranded Max, which is set to launch in the US on May 23rd. Its goal is to make Max the streaming destination for everyone in the house, with the new tagline “The One to Watch”. Max will introduce the company’s library product and new intellectual property, but will also double down on beloved franchises with the likes of live action Harry Potter Written TV series and new installments of The Big Bang Theory And game of thrones.

Streaming revenue for the first quarter was $2.46 billion, down 1 percent excluding foreign exchange effects “as global retail subscriber gains were more than offset by a decline in wholesale revenue,” while advertising revenue jumped 29 percent, “primarily driven by subscriber growth in Levels supported by direct-to-consumer (DTC) ads.” Content revenue fell 16 percent, driven by lower third-party licensing of HBO content. The company said its broadcast unit’s operating expenses fell 24 percent to $2.41 billion due to lower content consumption, the closure of CNN+ and “more efficient marketing spend.”

The studios’ adjusted earnings before interest, depreciation, and amortization (EBITDA) fell to $607 million in the first quarter, down 23 percent excluding foreign exchange effects, driven by lower revenue. The company said that studio revenues of $3.21 billion fell 7 percent due to “decreased television licenses, theatrical movie rentals and, to a lesser extent, home entertainment revenues.” The TV license was denied mainly because of certain large TV licensing deals in the previous quarter, as well as a lack of theatrical performances
availability. Theatrical film rentals were lower due to the strong performance of Batman In the prior-year quarter.” However, “Other Revenue” rose 30 percent due to higher studio production services and “continued strong attendance at Warner Bros. studio tours in London and Hollywood.” In addition to the first-quarter launch of Hogwarts Legacy It was the biggest release ever for a Warner Bros. game. , making it the company’s “best-selling game to date with over $1 billion in retail sales”.

WBD’s networking unit in the first quarter reported EBITDA of $2.29 billion, down 10 percent excluding foreign exchange factors as revenue fell 10 percent to $5.58 billion, while operating expenses decreased 10 percent due to Factors such as costs related to the 2022 Olympics in the earlier – year period and ‘less
Domestic general entertainment content expenditures, partially offset by higher domestic sports rights and costs associated with the BT Sport unconsolidated joint venture in the UK and Ireland. Revenue decreased due to a 3 percent drop in distribution revenue, “primarily driven by increases in contractual affiliate rates in the United States, which were more than offset by declines in pay-TV subscribers in the United States.”
Advertising revenue decreased 14 percent, “driven primarily by audience declines in general local entertainment and news networks and flexible advertising markets primarily in the United States and, to a lesser extent, in certain international markets.”

The company also noted that the broadcast of the 2022 Winter Olympics in Europe negatively impacted annual rate growth in the most recent quarter, “partly offset by a rise in local sports advertising led by the NCAA March Madness.”

On an earnings conference call Friday, Zaslav said WBD is “actively working” on adding sports and news shows to Max over time, saying such live programming can “keep consumers coming back for more and sticking around for longer.”

Discussing Warner Bros., Zaslav touted its centenary this year and asserted, “This studio has historically been the crown jewel of the industry, and we’re working hard to rebuild it to its former glory.” He described the “meaningful creative momentum, with more and more talented storytellers in the business choosing to partner with us.”

“After a challenging year at the box office,” Zaslav described upcoming film releases as Dune: Part TwoAnd BarbieAnd blue beetle And the light. He said, “We are committed to not only expanding the size of our slate of films next year, but more importantly, we are committed to making great, high-quality films that make an impact.” He reiterated his earlier comment that “It’s not about how much, it’s about how good”.

Zaslav also said his team is focused on “revitalizing our feature animation business,” referring to the recent hiring of former DreamWorks Animation senior executive Bill Damashki who is “working hard (with studio leadership) to develop a new slate.”

WBD CFO Gunnar Wiedenfels joked on Friday’s call that a year from the mega-merger feels like three years, but noted that the management team is still in the early stages of “unleashing the full potential” of the combined company.
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