Warner Bros. Discovery Adds 1.8 Million Subscribers, Narrows Streaming Loss 75% to $55 Million in Q4

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WBD Earnings: Lower content spend, cost cutting help offset 12% linear advertising revenue decline and strikes impact, but shares plunge

Warner Bros Discovery Earnings
Photo illustration by TheWrap

Warner Bros. Discovery, facing the headwinds of dipping advertising and reduced production from the Hollywood strikes, increased its subscriber numbers and slashed its streaming loss in the fourth quarter of 2023.

But shares fell more than 13% after the company posted a wider-than-expected earnings-per-share loss and declined to provide detailed financial guidance for 2024.

Here are the top-line results:

Net loss: $400 million, down from a loss of $2.1 billion, including $75 million of pre-tax restructuring expenses.

Earnings Per Share: Loss of 16 cents per share, compared to a loss of 11 cents per share expected by analysts surveyed by Zacks Investment Research

Revenue: $10.28 billion in revenue, down 6.6% from Q4 2022, compared to $10.23 billion expected by analysts surveyed by Zacks Investment Research

Subscribers: 97.7 million, up 1.9% from the previous quarter

The company, which includes Warner Bros. studios, CNN, HBO and the Max streaming platform, added 1.8 million direct-to-consumer subscribers in the quarter and narrowed its streaming loss by 75% year over year to $55 million as lower content spend and cost-cutting helped offset a 12% decline in linear advertising revenue. WBD expects to have another profitable year for streaming after showing a streaming profit of $103 million in 2023, compared to a loss of nearly $2.1 billion in 2022.

“We’re a far healthier company now and we’re building real momentum and we expect 2024 will be a year to drive that momentum forward even further,” CEO David Zaslav said on the earnings call. “That said, this business is not without its challenges. Among them we continue to face the impacts of ongoing disruption in the pay TV ecosystem and a dislocated linear advertising ecosystem.”

Warner Bros. Discovery executives highlighted the company’s efforts to increase its free-cash flow, lower debt and fill up the content pipeline that was badly affected by the writer and actors’ strikes, especially on the TV side. WBD, which was created when AT&T spun off WarnerMedia in 2022 and merged it with Discovery, completed its transition at the end of 2023.

Overall advertising revenue fell 8.7% to $2.09 billion. The WGA and SAG-AFTRA strikes severely impacted content revenue, which fell 19% year over year to $2.93 billion, hurting TV revenue the most, the company said.

The direct-to-consumer division posted an adjusted EBITDA loss of $55 million for the quarter, compared to a year-ago loss of $217 million.

The total 97.7 million subscribers included 54.6 million domestic subscribers and 42.3 million international subscribers, with 1.3 million subscribers coming from the company’s acquisition of BluTV.

Revenue for the DTC segment, which includes traditional HBO cable subscriptions and the Max and Discovery+ streaming services, grew 3% year over year to $2.53 billion. Average revenue per user came in at $11.65 domestically, $3.88 internationally and $7.94 globally, up 7% from 2022.

Advertising revenue in the DTC segment jumped 51% to $186 million, driven by higher U.S. Max engagement and ad-lite subscriber growth, while content revenue fell 30% to $171 million, driven by the timing of third-party licensing.

Distribution revenue in the DTC segment climbed 4% to 2.16 billion, primarily attributable to price increases in the U.S. and some international markets, new partnership launches and the transfer of TNT Sports Chile from linear to direct to consumer.

Studios revenue fell 17% year over year to $3.17 billion, and dropped 12% to $12.2 billion for the full year, despite the blockbuster success of “Barbie.” Adjusted EBITDA for the segment fell 30% in the quarter to $543 million.

Theatrical revenue increased in the fourth quarter due to a larger release slate, which included “Wonka,” “Aquaman and the Lost Kingdom” and “The Color Purple.” Games revenue also grew because of the continued performance of Hogwarts Legacy, including its launch on the Nintendo Switch during the quarter.

Zaslav, who acknowledged challenges with the studio business in 2023, struggled on Friday to tout any “Barbie”-sized projects beyond the upcoming “Superman: Legacy,” which is still a year and a half away from release, and next month’s “Dune: Part Two” and “Godzilla vs. Kong.”

“Bottom line, the studio has really been underperforming, including the end of the year where we had some real struggle, but we’re very optimistic about this year and it has given us a chance to have a lot of upside in the next two years,” Zaslav said. “I mean, it was really a struggle.”

Revenue for the networks segment, which comprises WBD’s domestic and international television markets, fell 9% to $5.03 billion. Adjusted EBITDA fell 11% to $2.21 billion.

Networks content revenue fell 15% to $261 million, primarily driven by lower international sports sub-licensing, as well as lower third-party and inter-segment content licensing.

Distribution revenue in the networks segment fell 4% year over year to $2.75 billion, primarily driven by declines in U.S. pay-TV subscribers, exiting the AT&T SportsNet business, and the transfer of TNT Sports Chile from Networks to DTC. It was partially offset by increases in U.S. contractual affiliate rates and the impacts of extreme inflation in Argentina.

Advertising revenue in networks fell 12% to $1.95 billion, driven by audience declines in domestic general entertainment, news networks and soft linear advertising markets mainly in the U.S. and, to a lesser extent, certain international markets, as well as from WBD exiting the AT&T SportsNet business.

“Domestic ad sales are pacing meaningfully better quarter to date as we are beginning to capture the benefits of our strong upfront deals struck last year,” CFO Gunnar Wiedenfels said. International ad sales, which account for more than 20% of total network ad sales, continue to be firmer, particularly in the EMEA (Europe, Middle East and Africa) region, which represents over three-quarters of WBD’s international ad revenues, he said.

Warner generated $3.3 billion in free cash flow, up 33% from the fourth quarter of 2022, and ended the quarter with $4.3 billion of cash on hand, $44.2 billion of gross debt and 3.9 times net leverage.

The impact of the strikes contributed roughly $1 billion to free cash flow, while negatively impacting total EBITDA of $2.47 billion for the quarter by a few 100 million dollars.

“As we continue to execute on our transformation journey, we will likely incur some additional cash restructuring costs, but we expect this to be at a significantly lower level,” Wiedenfels noted.

Looking ahead, Warner is targeting $1 billion of streaming EBITDA in 2025. It also anticipates a “very meaningful improvement” in free cash flow year over year versus the negative $930 million incurred last year. The company has paid down more than $12 billion in debt in less than two years, drawing it “significantly closer” to its longer-term leverage targets, Wiedenfels said.

“It really is night and day versus where we started,” the CFO added. “Of course, we still have additional work to do and more opportunities to capture.”

WBD shares have fallen more than 45% in the past year and more than 26% year to date.


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