Warner Bros. Discovery ended March with 97.6 million global streaming subscribers, compared to about 96.1 million at the end of 2022 and more than expected, the entertainment conglomerate announced Friday in its first-quarter earnings report. Importantly, the streaming unit swung to a $50 million profit, compared to a loss of $654 in the same period a year ago and a loss of $217 million in the fourth quarter. Wall Street will take this streaming success as a sign of continued progress toward management’s commitment to making the company sustainably profitable and fulfilling its promise not to chase subscribers at all costs.
“We feel good about the trajectory we’re on,” said David Zaslav, CEO of Warner Bros. Discovery, on becoming the first Hollywood giant to post a profitable quarter for its streaming division as entertainment CEOs set their sights on getting their direct-to-consumer business to turn a profit. He spoke of “a meaningful turn of events”, adding: “In fact, we now expect our US direct-to-consumer business to be profitable for 2023 – a year ahead of our expectation.”
Wells Fargo analyst Steven Cahall had forecast a streaming loss of $76 million in his earnings preview, “although we expect second quarter losses to reach $344 million from higher sales, general and administrative (expenses) related to the Max relaunch.”
Warner Bros. Discovery reported quarterly revenue of $10.7 billion on Friday, down 6 percent and roughly in line with analyst expectations, while its bottom line fell below estimates. The company’s first-quarter loss of 44 cents per share compared to a Wall Street consensus for a loss of 5 cents per share marked a reversal from a year-ago gain of 69 cents per share. However, if costs related to the merger of Discovery and AT&T’s WarnerMedia, which created the industry powerhouse, were ignored, the company would have beaten consensus earnings expectations.
The company’s quarterly loss of $1.07 billion included $1.81 billion in “pretax amortization of acquisition-related intangibles and $95 million in pretax restructuring costs,” the company said.
Increasing free cash flow, a measure of profitability that shows how much money a company is left with after meeting its financial obligations, was a key focus of Zaslav’s team. For the first quarter, Warner Bros. However, Discovery reported negative free cash flow of $930 million on Friday due to interest and sports rights payments.
Shares of WBD fell more than 5 percent in pre-market trading.
The mega deal that the company brokered closed just over a year ago, in April 2022. “We went through some major restructuring and repositioned our businesses with more precision and focus,” Zaslav said on Friday. “And we see some positive evidence emerging, with direct-to-consumer perhaps the most prominent.”
Several Wall Street analysts have become bullish on Warner Bros. this year. Discovery due to management’s focus on free cash flow, debt reduction and streaming profitability.
The company revealed in mid-April that it would combine its HBO Max and Discovery+ streaming services into the rebranded Max, which launches in the US on May 23. The goal is to make Max the streaming destination for everyone in a household, with the new slogan “The One to Watch.” Max will feature the company’s library product and new intellectual property, as well as doubling down on beloved franchises with, say, a live-action Harry Potter scripted television series and new episodes of The big bang theory And Game of Thrones.
Streaming revenue for the first quarter was $2.46 billion, down 1 percent excluding currency effects “as global retail subscriber growth was more than offset by a decline in wholesale revenue,” while advertising revenues revenue was up 29 percent, “primarily driven by growth in subscribers to our direct-to-consumer (DTC) ad-supported tiers,” the company said. Content revenue was down 16 percent, driven by lower licenses from third-party for HBO content.The streaming unit’s operating expenses fell 24 percent to $2.41 billion due to lower content amortization, the closure of CNN+ and “more efficient marketing spend,” the company said.
The launch of Hogwarts Legacy in Q1 was the biggest release of all time for Warner Bros. Games and is the best-selling game
year-to-date with over $1 billion in retail sales.