Warner Bros. Discovery Narrows Q1 Net Loss 10% to $966 Million, but Studio Profit Drops 70%

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 The streaming segment posted $86 million in profit and added 2 million DTC subscribers for 99.6 million globally

Warner Bros Discovery Earnings
Photo illustration by TheWrap

Warner Bros. Discovery reported more red ink on Thursday, saying it trimmed its first quarter net loss by 10% to $966 million on lower revenues of $9.96 billion. Weighing down its results were a 70% year-over-year drop in profits in its studio division and an 8% slide in profits in its networks segment.

Shares of WBD initially fell as much as 6.5% in pre-market trading, after missing Wall Street expectations, but turned into positive territory once the market opened.

Here are the top-line results:

Net loss: $966 million, a 10% improvement compared to a loss of $1.07 billion in the year ago-period

Earnings Per Share: a loss of 40 cents per share, compared to a loss of 24 cents per share expected by analysts surveyed by Zacks Investment Research

Revenues: $9.96 billion, down 7% year over year, compared to $10.29 billion expected by Zacks

Adjusted EBITDA: $2.1 billion, down 19% year over year

Subscribers: Added 2 million subscribers for a total of 99.6 million globally

WBD executives framed the results amid a challenging media environment for the company, which has struggled to find its footing since its creation after AT&T spun off WarnerMedia and merged it with Discovery in 2022.

“The current media landscape is increasingly dynamic,” CEO David Zaslav told analysts on Thursday. “And in response we’ve had to make some tough and at times unpopular decisions. But we are doing what we believe is necessary to best position the company for the future. While transformation success is not easily measured in short term months, or even quarters, we’re very confident in the strength of our assets. We believe we will see both strategic and financial progress in the quarters ahead.”

In the quarter, the media giant which owns the Warner Bros. studios, HBO, CNN and the Max streamer, posted another tumble in TV advertising that offset a profit in its streaming business. The company said the dual Hollywood strikes had once again pushed down its TV revenue and that its games segment had further negatively impacted the quarter’s overall results.

Zaslav highlighted the company’s use of AI to improve its “consumer offerings” and create more efficiencies, calling it one of the company’s “top priorities.” Much of the discussion with analysts was dominated by questions about a streaming bundle Disney and WBD announced Wednesday which will offer Max, Hulu and Disney+ starting this summer.

Streaming Profit Grows But DTC Revenue Remains Flat

WBD’s direct-to-consumer division, which includes traditional HBO cable subscriptions and the Max and Discovery+ streaming services, reported a profit of $86 million, up 72% year over year. Revenue for the DTC segment was flat at $2.46 billion. The company reported 52.7 million subscribers in the U.S. and Canada and 46.9 million internationally.

Distribution revenue grew 1% year over year to $2.19 billion, primarily driven by international subscriber growth and price increases in the U.S. and Latin America during the prior year. The growth was partially offset by lower U.S. subscriber growth, resulting from continued linear wholesale subscriber declines.

Advertising revenue climbed 70% to $175 million, primarily driven by higher engagement on Max in the U.S., which in part was due to the launch of B/R Sports on Max in October and ad-lite subscriber growth. Content revenue fell 46% to $99 million, mostly due to lower volume of third-party international licensing deals. Average revenue per user was $11.72 domestically, $3.75 internationally and $7.83 globally.

On Wednesday, Disney and WBD said they would offer a bundle of Disney+, Hulu and Max. Warner is also teaming up with Disney and Fox on a sports streaming joint venture slated to launch this fall. Later this year, Max will begin cracking down on password-sharing, with a broader rollout in 2025. 

“We expect this product will help increase retention and lower churn and thus support higher customer lifetime values,” Zaslav said of the offering.

Zaslav warned that U.S. subscriber growth would be impacted by some seasonality during the second quarter, particularly related to sports, but said that WBD is on track for “continued robust international growth” as it rolls out out Max to 29 countries across Europe. DTC revenue in the second quarter will be impacted by the timing of output deals renewed last year and the availability of content.

“Despite the heavy launch investments, I remain fully confident in our path to achieve our $1 billion+ EBIT target for 2025 and our growth ambitions thereafter,” WBD CFO Gunnar Wiedenfels said.

Networks Profit Falls, Dragged Down By 11% Decline in TV Advertising

In the networks segment, total revenue fell 8% to $5,13 billion, while adjusted EBITDA dipped 8% year to $2.12 billion.

Distribution revenue fell 7% year over year to $2.79 billion, primarily driven by declines in U.S. pay-TV subscribers, which were partially offset by increases in U.S. contractual affiliate rates and inflationary impacts in Argentina.

TV advertising revenue tumbled 11% year to $1.99 billion, primarily driven by audience declines in domestic general entertainment and news networks, as well as the soft linear advertising market in the U.S. and Latin America. Growth in the Europe and Middle East (EMEA) partially offset the decline. The company’s exit from AT&T SportsNet was a modest headwind to advertising revenue and will continue to be a headwind with “marginal profit impact” for the end of the third quarter, Wiedenfels said.

Content revenue grew 8% to $264 million, mostly driven by higher inter-segment content licensing to DTC.

Hollywood Strikes, Decline in Games Revenue Weighs on Studio Division

In the studios segment, revenue decreased 13% year over year to $2.82 billion, while adjusted EBITDA dropped 70% to $184 million. Distribution revenue increased 67% year over year to $5 million, advertising revenue rose 33% year over year to $4 million and content revenue fell 13% to $2.62 billion.

Games revenue declined significantly due to the success of “Hogwarts Legacy” in the prior year quarter, while the release of “Suicide Squad: Kill the Justice League” during the first quarter generated significantly lower revenues, leading to a $200 million impact to EBITDA during the quarter.

TV revenue declined meaningfully as production delays resulting from the WGA and SAG-AFTRA strikes led WBD to deliver fewer episodes during the first quarter, as well as the timing of licensing deals and the availability of content.

Theatrical revenue increased significantly due to “Dune: Part Two,” and higher carryover from titles in the fourth quarter of 2023 versus the prior year. “Wonka” and “Aquaman and the Lost Kingdom” boosted material growth in home entertainment revenue.

Warner generated $390 million in free cash flow, a $1.3 billion year over year improvement, with cash provided by operating activities increasing to $585 million. It repaid $1.1 billion of debt during the quarter and announced a $1.75 billion cash tender offer aimed at further reducing its debt.

The company ended the quarter with $3.4 billion in cash on hand, $43.2 billion in gross debt and 4.1 times net leverage.

“We now see a path to meaningfully exceed the more than $1 billion dollars of remaining cost savings that we have previously guided to, which is on top of the more than $4 billion that we already realized through the end of 2023,” Wiedenfels said.

He noted that the company sees “tangible further benefits” from consolidation of the company’s real estate facilities and a dozen global content workflow systems.

WBD shares have fallen 33% year to date, 41% in the past year and 68% since the 2022 merger.


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