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Warner Bros. Discovery Chief Bullish Despite Big Q4 Loss: ’We Have a Great Hand’

The entertainment giant reported a loss per share of 86 cents on revenue of $11 billion, with DTC subscribers climbing to 96 million

Showing the ongoing costs of combining two large media companies in a rapidly shifting industry, Warner Bros. Discovery reported a net loss of $2.1 billion on Thursday, or 86 cents per share, for the fourth quarter of 2022. The figure included $1.2 billion in pre-tax restructuring expenses and an acquisition-related write-down of $1.85 billion.

Revenue for the quarter came in at $11 billion, down 11% on a pro-forma combined basis compared to the same period a year ago. Analysts surveyed by Zacks Investment Research were expecting a loss of three cents per share on revenue of $11 billion.

“Last year was a year of restructuring, 2023 will be a year of building. And off we go,” Warner Bros. Discovery CEO David Zaslav told analysts on the company’s earnings call. “We have a great hand and we’re doing a lot right. That said, there’s still more that we need to get right and we are hard at work.”

The company ended the fourth quarter with $45.5 billion in debt on its balance sheet and $3.9 billion in cash on hand. The company has repaid $7 billion in debt since the WarnerMedia merger closed in April, including $1 billion during the fourth quarter.

The direct-to-consumer division posted an operating loss of $217 million, a $511 million year-over-year improvement, on revenue of $2.45 billion. Average revenue per user for the DTC business globally was $7.58, with domestic ARPU at $10.83 and international ARPU at $3.71.

As of the end of 2022, Warner Bros. Discovery had a total of 96.1 million DTC subscribers across HBO Max and Discovery+ after adding 1.1 million subscribers during the quarter, helped in part by the re-launch of HBO Max on Amazon Channels in December.

The company raised the price of HBO Max for the first time in January, with the cost of its ad-free subscription increasing by $1 to $15.99 per month, a change not reflected in the just-reported quarterly results. The hike came as Warner plans to launch a combined, ad-supported offering of HBO Max and Discovery+, which it plans to roll out during an event on April 12, Zaslav said on the call Thursday.

“We have a clear attack plan where we’ll drive this really across the country and into markets around the world with conviction,” he told analysts.

WBD will also continue to offer a standalone version of the lower-cost Discovery+ service and plans to introduce its own FAST service this year. In addition, Warner struck deals with Tubi and Roku to license 2,000 hours of content and launch a series of free, ad-supported channels to carry its movies and television shows.

The networks segment saw a profit of $2.5 billion and revenue of $5.5 billion. Advertising revenue for the segment fell 17% to $2.3 billion, while distribution revenue dropped 5% to $2.87 billion and content revenue increased 7% year over year to $307 million.

“Linear ad sales is a top priority at the moment, particularly as we balance both cyclical headwinds and ongoing secular challenges, much of which we’ve dealt with for the last several years,” Zaslav added.

The studios division saw revenue decrease 23% year over year to $3.8 billion, citing lower TV licensing deals and fewer theatrical releases. DC Comics film “Black Adam” was released during the fourth quarter, compared to multiple releases including “Dune,” “The Matrix Resurrections,” “King Richard” and “The Many Saints of Newark” in the same period during the previous year. The segment posted an operating profit of $768 million.

Looking ahead, WBD Chief Financial Officer Gunnar Weidenfels said the company expects $4 billion in cost savings in 2024 tied to the WarnerMedia merger, double its original estimate. The DTC segment currently remains on track to hit a $1 billion profit globally in 2025. He also said that the company is also looking into selling potential assets, with Zaslav adding that any sales would be “non-strategic.”