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HomeTechWarner Bros. Discovery Says Streaming Business Will Reach Profitability in 2023

Warner Bros. Discovery Says Streaming Business Will Reach Profitability in 2023

Warner Bros. Discovery Says Streaming Business Will Reach Profitability in 2023

Warner Bros. Discovery beat Wall Street revenue expectations on Friday after reporting revenue of $10.7 billion for the first quarter of 2023. However, the company reported a net loss of $1.069 billion, or a loss of 44 cents per share. Analysts surveyed by Zacks Investment Research were expecting earnings per share of 21 cents on revenue of $10.6 billion.

As it gears up to relaunch its flagship streaming service under the new Max brand name on May 23, WBD CEO David Zaslav revealed that the company now expects its streaming business in the U.S. to reach profitability in 2023 – a year ahead of guidance. The company, which previously said its DTC business would break even in 2024 and generate a $1 billion profit in 2025, also reaffirmed the 2025 outlook.

“The key here is our streaming business is no longer a bleeder,” Zaslav told analysts and investors during Friday’s earnings call. “It’s hard to run a business when you have a big bleeder. And so getting this business under control, focusing on what people love to watch, how do we create content that people love? And now as we launch Max, we’ll be able to nourish and delight subscribers with the greatness of HBO, which on Sunday nights is really a cultural moment, whether it’s “White Lotus,” “House of the Dragon,” “The Last of Us,” “Succession,” and then put it together with Discovery content which has been really strong for us.”

The direct to consumer division added 1.6 million streaming subscribers during the quarter for a total of 97.6 million globally and reported a profit of $50 million, a $704 million year-over-year improvement on a pro forma combined basis. Revenue for the segment came in at $2.455 billion, including $2.165 billion in distribution revenue, down 1% year over year as global retail subscriber gains were more than offset by a decline in wholesale revenues, $103 million in advertising revenue, up 29% year over year primarily driven by subscriber growth on DTC ad-supported tiers, and $185 million in content revenue, down 16% year over year driven by lower third-party licensing of HBO content. Average revenue per user came in at $10.82 domestically, $3.48 internationally and $7.48 globally.

Max, which combines the libraries of HBO Max and Discovery+, will offer three pricing options: a $9.99 per month Max Ad Lite tier, a $15.99 per month Max Ad Free tier and a $19.99 Ultimate Ad Free tier. The company will also continue to offer a standalone version of the lower-cost Discovery+ service and plans to introduce its own free ad-supported streaming television (FAST) service later this year. Chief financial officer Gunnar Weindefels said a “large portion” of Discovery+’s 4 million subscribers are expected to turn off the service a few months after the Max launch.

In the studios segment, total revenue fell 8% to $3.212 billion, including distribution revenue of $3 million, advertising revenue of $3 million and content revenue to $3.027 billion. Content revenue fell 8% as higher games revenue from the release of Hogwarts Legacy was more than offset by lower TV licensing, theatrical film rental, and to a lesser extent, home entertainment revenues. TV licensing declined primarily due to certain large TV licensing deals in the prior year quarter as well as fewer theatrical availabilities. Theatrical film rental was lower due to the strong performance of “The Batman” in the prior year quarter. Home entertainment declined due to fewer new releases of theatrical product and lower library sales. The segment posted a profit of $607 million.

In the networks segment, total revenue fell 12% to $5.581 billion, including distribution revenue of $2.995 billion, down 3% driven by increases in U.S. contractual affiliate rates offset by declines in U.S. pay-TV subscribers, advertising revenue of $2.237 billion, down 14% driven by audience declines in domestic general entertainment and news networks and soft advertising markets mainly in the U.S. and certain international markets, and content revenue of $245 million, down 51% primarily driven by the sublicensing of Olympic sports rights to European broadcast networks in 2022. The segment posted a profit of $2.293 billion.

The latest quarterly results come as Warner Bros. Discovery has been undergoing a major restructuring, which it expects to complete by the end of 2024. The company previously estimated that it will incur up to $5.3 billion in total restructuring charges before taxes, including up to $3.5 billion in content impairment and development write-offs. The first quarter’s net loss included $1.810 billion of pre-tax amortization from acquisition-related intangible assets and $95 million of pre-tax restructuring expenses. WBD ended the quarter with $2.6 billion of cash on hand and $49.5 billion of gross debt.

Warner Bros. Discovery shares fell over 5% in pre-market trading following the earnings announcement.

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