Warner Bros. Discovery Q1 Earnings Report: Streaming Loss

Warner Bros. Discovery posted a first-quarter profit of $86 million for its Direct-to-Consumer (DTC) unit, which includes its streaming and premium pay-TV services, compared with a $50 million year-ago profit, after turning a full-year 2023 profit earlier this year.

The company, led by CEO David Zaslav, said Thursday that it ended March with 99.6 million global streaming subscribers, compared with 97.7 million as of the end of 2023 and ahead of Wall Street expectations. Segment revenue was nearly unchanged, helped by subscriber price increases and higher advertising revenue, driven by Max U.S. ad-lite subscriber gains.

TD Cowen analyst Doug Creutz had recently forecast the mixed first-quarter results in this key unit. “In DTC, we expect WBD to finish the quarter with 98.8 million OTT subs (52.2 million domestic,
and 46.6 million international), with sequential total sub growth of 1.2 million quarter over quarter,” he wrote in a preview report. “We estimate segment revenue of $2.64 billion (+8 percent year-over-year) and an adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) loss of $96 million.”

With Netflix profitable and being seen by some observers as the king of streaming, Wall Street has been looking for Hollywood conglomerates to make their streaming business units profitable after an initial focus on subscriber growth. Most sector giants ended 2023 with a ways to go. But their streaming units are not directly comparable though as they sometimes don’t include all streaming operations of a company or include additional business. WBD’s DTC segment, for example, consists of its streaming and premium pay-TV services, meaning HBO is part of it.

WBD’s quarterly earnings report on Thursday showed weakness at its studios and networks segments though.

Studios results were hit by fewer TV shows delivered than in the year-ago period due to the Hollywood strikes’ fallout, as well as a weaker performance in video gaming. In the first quarter of 2023, the video game Hogwarts Legacy did very well, making for a tough comparison, while in the latest quarter, Suicide Squad didn’t do well, hitting gaming revenue and earnings before interest, taxes, depreciation, and amortization (EBITDA).

WBD’s networks unit was hit by continued weakness in the linear business and an advertising revenue miss, which was only partially offset by cost management initiatives. Ad revenue in the unit fell 11 percent, “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,” only partially offset by growth in the Europe, Middle East and Africa region.

WBD’s first-quarter total revenues were $9,958 million. Revenues decreased 7% ex-FX(1)(*) compared to the prior year quarter.

“We are pleased with our progress in the first quarter as evidenced by strong results in important key performance indicators,” Zaslav said. “We delivered meaningful growth in our streaming business with a nice acceleration in ad sales” and will “soon be rolling out Max to 29 countries across Europe, and the content lineup for Max over the coming year is one of our strongest ever.”

Added the WBD CEO: “Warner Bros. Pictures also had a strong start to the year as the first studio to reach $1 billion in both overseas and global box office, and they have a great slate in the works.”

Zaslav also touted a financial metric that he and his CFO Gunnar Wiedenfels have been focusing on. “Importantly, we once again delivered strong free cash flow (FCF), even in our seasonally weakest FCF quarter,” he concluded, a reference to FCF posting a $1.3 billion swing from a year-ago loss to $390 million in the first quarter. “We continue to make bold moves to transform our company for the future as we position ourselves to take full advantage of the opportunities ahead.”