Under David Zaslav, Warner Bros. Discovery’s Streaming Profit Is Surging
Warner Bros. Discovery, the newly formed media and entertainment conglomerate following the merger of WarnerMedia and Discovery, Inc. last year, posted a net loss of $417 million for the quarter ended September. But its flagship streaming services, Discovery+ and Max, a rebrand of HBO Max that combined HBO’s content with Discovery’s onto one streaming platform, represented a bright spot as revenue and profit surged.
Discovery+ and Max, which launched in June, actually lost 700,000 subscribers, or 0.7 percent of the total, during the quarter. But WBD’s streaming platforms brought in $111 million in profit, partly thanks to a 29 percent jump in streaming ad revenue. “We’ve said it’s not about how many subscribers, it’s about how much money,” CEO David Zaslav said on a call with analysts on Nov. 8. At the end of September, Max and Discover+ had 95.1 million subscribers combined.
Gunnar Wiedenfels, WBD’s chief financial officer, said that the company’s direct-to-consumer sector, which includes its streaming services, is on track to be profitable this year, reversing a $2 billion loss last year. The segment turned a profit for the first time in the first quarter of this year but posted a $3 million loss for the second quarter.
Zaslav said the introduction of live programming to Max and a broader content selection increased engagement among users and lowered subscriber churn, which is when users decide to cancel or not to renew their subscriptions. “Churn is the biggest issue that we face. This is a very compelling service, the churn is too high. So this is an all-on attack to reduce churn,” Zaslav said on the earnings call.
Max’s new live programming offerings include CNN Max and Bleacher Report Sports, both introduced in October, so their direct financial impact wasn’t reflected in WBD’s third-quarter earnings. But Zaslav said these new offerings are already helping retain subscribers.
“It’s a huge advantage for us to have live sports and news together with our bouquet of scripted entertainment, nonfiction and one of the best TV and motion picture libraries in the world,” Zaslav told analysts. “Not only does this make for an even better offering for consumers, as evidenced by the millions of subscribers who have enjoyed our sports and news offering in only the first few weeks, but it’s also helping habituality, which is the most strongly correlated influence on churn.”
Barbie success overshadows network struggles
Overall, WBD’s $417 million net loss of the last quarter was a huge improvement from a $2.31 billion loss in the same period a year ago. Quarterly revenue came at $9.98 billion, slightly below analysts’ estimate of $10 billion. WBD executives cited the Hollywood strikes, which have now concluded as SAG-AFTRA reached a tentative deal with the studios on Nov. 8, and the decline of linear TV ad revenue as challenges for the company’s finances.
WBD’s studio sector held steady in the third quarter thanks to the success of Barbie, the highest-grossing film in the history of the Warner Bros. movie studio, generating $1.5 billion from the global box office. WBD’s TV network sector suffered the most, reporting 7 percent less revenue than a year ago. CFO Wiedenfels was not confident that the company would be able to turn around its losses in linear TV ad revenue next year.
“The timing of an ad recovery is currently difficult for any of us to predict with any conviction,” Wiedenfels said on the earnings call. “As we begin to formulate the initial framework of our TV production business getting back to work into 2024, there is simply a lot we don’t know yet.”