Warner Bros Discovery Q4 Revenue Drops Due to Ad and Studio Softness; The company claims “significant operational and financial benefits” from streaming

Warner Bros. Discovery’s revenue fell 11% to $11 billion (or a 9% drop excluding currency fluctuations), mostly due to poor advertising and difficult studio comparisons.

EBITDA also fell 5% to $2.6 billion. Shares of the media giant fell as much as 5% in after-hours trading as investors digested the decidedly mixed report, but later turned positive.

On the plus side for the company, DTC losses were lower and free cash flow improved, metrics the company is emphasizing as it continues a massive overhaul. In the press release, CEO David Zaslav noted “significant financial and operational” gains in streaming during the quarter. Total subscribers (including linear HBO) rose 1.1 million to 96.1 million, slightly below consensus estimates.

The DTC segment generated $2.45 billion in revenue, of which only about 5% came from advertising. (The mid-2021 launch of ad-supported HBO Max was a top priority for WarnerMedia ahead of its merger with Discovery, but the results of the launch of the lower-cost tier have not yet been detailed.) Adjusted EBITDA improved 13% to a loss of 217 million dollars during this period.

Results were reported on a pro forma basis and are valid for at least two additional quarters as the WarnerMedia-Discovery merger is completed in April 2022.

Revenue was low compared to weak Wall Street ad consensus ($11.23 billion) (-17%) and harsh comparisons to last year’s royalty earnings. Net losses were inflated by previously announced restructuring charges. Much of the restructuring, as the company pursued a stated goal of $3.5 billion in cost savings with major programs such as a one-off HBO tentpole Western world from the company’s own platforms. Zaslav took WBD to a more open-minded approach to content licensing and Western world is to become an anchor tenant for a planned FAST launch. silicon valleyIn a similar initiative, it will air on TBS.

WBD is planning an event on April 12 where executives will outline their rebranding and streaming strategy as part of the HBO Max and Discovery+ merger. After months of discussions about merging two apps into one, the company decided this month to offer Discovery+ as a standalone service when the merged company launches. WBD is a leading proponent of Wall Street’s new religion of streaming profitability as opposed to revenue and subscriber growth.

The message from the Zaslav-led conglomerate is now that it is making solid progress with a major overhaul. It was painful, as layoffs and sunk content totaled $5.3 billion in restructuring costs through 2024 and a projected $3.5 billion in cost savings. The WGA recently denounced Warner-Discovery as “the latest disastrous merger to show the downside of consolidation and especially the threat to diversity as gatekeepers collude to increase their power.”

The Networks unit reported a 17% decline in ad revenue to $2.23 billion. The company attributed the decline to declining viewership of local general entertainment networks and soft
Advertising markets, primarily in the United States

The studios’ revenue fell 23% to $3.8 billion. Content revenue fell 24% excluding currency effects due to lower TV licenses and, to a lesser extent, lower gaming and home entertainment revenue.

TV license deals were lower than in the same quarter last year. Gambling and home entertainment revenues compare unfavorably with last year’s Covid-driven demand. And home entertainment sales have felt pressured this year by fewer theatrical releases (Black Adam last quarter, compared to the 2021 premium of Dune, The Matrix Resurrections, King RichardAnd The Many Saints of Newark. It’s worth noting that Windows was much more compressed a year ago than it is now, with the 2021 Warner slate hitting theaters day and night and HBO Max, while other Windows exclusives streamed to the 30-day Max.

Free cash flow, or money left over after all financial obligations are paid, beat consensus at $2.48 billion, up from $784 million. Other media conglomerates such as Paramount and Disney posted negative free cash flow last quarter as they continue to fund their streaming ambitions. WBD’s asset mix is ​​arguably unique, as HBO Max was launched on top of existing subscriber outlets and offered at no additional cost to HBO’s linear subscribers.

Gross debt, which worries many investors, was just under $50 billion. WBD will have paid off $7 billion in debt since the completion of the Discovery-WarnerMedia merger, but still carries a heavy burden.

Wall Street has developed a half-hearted sentiment about the company’s prospects in recent months, with shares up more than 60% year-to-date and reversing losses from 2022.