Warner Bros. Discovery Reports Good News On The Streaming Front

Warner Bros. Discovery
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reported earnings on Friday with mixed results. On the one hand, the company posted a $1.07 billion loss in the quarter and negative free cash flow of $930 million due to sports rights payments and interest costs. On the other, it made a profit on its streaming services, something almost unheard of nowadays with the exception of Netflix
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.

“Our U.S. streaming business is no longer a bleeder,” said CEO David Zaslav on the company’s earnings call. “It is hard to run a business when you have a big bleeder,” he said. Management now expects its streaming unit to be profitable for 2023, a full year ahead of their previous guidance (although the company gave analysts a heads up that they may lose $300 million in the second quarter).

The Streaming division ended the March quarter with 97.6 million subs, up 1.6 million from December (note that 4 million homes have both HBO Max and Discovery+ so the actual number of streaming homes is 93.6 million). They’ve added about 7 million subscribers over the past year.

However, on the domestic front, growth has been slower, with the sub count at year-end 54.6 million, the direct-to-consumer (DTC) business in the U.S. added only 700K subscribers, growing to 55.3 million at the end of Q1. It’s added 1.9 million domestic subs over the last year.

The streaming division earned $50 million (in segment EBITDA, or Earnings Before Interest, Taxes, Depreciation & Amortization) versus a loss of $654 million in the first quarter of 2022 and a sharp positive swing from the $217 million loss in the fourth quarter of 2022.

Although revenue in this segment actually dipped 1% to $2.46 billion, there was a surprising 29% jump in advertising revenue tied primarily to new ad-supported tiers on their direct-to-consumer services (DTC).

One issue going forward for the streaming business is that HBO Max and Discovery+ are being rebranded on May 23 to Max. How consumers react to this change could be significant as HBO has always had a powerful brand. The combined service is rolling out new content like a live-action Harry Potter scripted series and new episodes of Game of Thrones and The Big Bang Theory. The stock was down in early trading 5.7% to $11.63 but rebounded to close up 4.5% at $12.89.

Original content is key to the business, and CEO David Zaslav admitted on the company’s conference call, “we have lost a lot of money in the motion picture business, and making that turn is important.” He has high hopes for four upcoming movies, Dune: Part Two, Barbie, Blue Beetle and The Flash saying after two of the worst years at the box office, things were about to turn.

The news on the streaming front is a pleasant surprise given that on Thursday Paramount
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Global reported terrible earnings for the first calendar quarter and slashed its dividend by 79% to just 5 cents per share.

Revenues were down 1% to $7.3 billion with a 39% increase in streaming to $1.5 billion, offsetting most of the declines in the company’s TV Media and Filmed Entertainment segments. However, the bottom line was bleaker, with Adjusted OIBDA (Operating Income Before Depreciation and Amortization) plummeting 40% from $913 million in the first quarter of 2022 to $548 million in the first quarter of 2023. Adjusted diluted EPS from continuing operations attributable to Paramount also looked bleak—down 85% from Q1 2022 to $0.09 in Q2 2023.

Shares closed down 28.4% on Thursday to $16.40 and only rebounded slightly on Friday (up 2.8% to $16.86).

The company reported that streaming revenues jumped 39% with Paramount+ adding 4.1 million subscribers to reach 60 million. However streaming losses increased 12% to $511 million. Investors were likely not pleased with this as on top of that the company wrote off a massive $1.67 billion in programming that it doesn’t believe will fit into its online platform with the merger of Showtime and Paramount+.

At its streaming operations, ad revenue grew by 15% to $398 million while subscription revenue grow 50% to $1.112 billion, bringing total revenue in Q1 2023 to $1.510 billion (up 39%) while adjusted OIBDA loss widened 12% from -$456 million in Q1 of 2022 to $511 million in Q1 2023.

Another major player on the streaming front, NBCUniversal, reported results for its Peacock online service which increased paid subscribers in the U.S. year-over-year in the first quarter by 60% to 22 million and said losses should peak in 2023 at about $3 billion.

It is amazing to see the amount of money being spent for content for these myriad DTC services. This has had an unintended consequence, driving up prices for cable and broadcast networks which are competing for the same stars and producers. But with their revenues falling in most cases, it makes it difficult to bid on mega-budget TV shows.