Warner Bros. Discovery CEO David Zaslav
Courtesy of Warner Bros. Discovery
Warner Bros. Discovery CEO David Zaslav on Thursday argued the future of his studio and the wider TV streaming landscape will be driven by the increased packaging and marketing of streaming products together.
“As we look at what happens ahead, there likely will be a restructuring of how people view content. And there’s a lot of irrationality in the market that’s getting shaken out, in terms of the amount of money spent. We said early on, it’s not how much, it’s how good, and that’s what we’re focusing on. And ultimately, the business will look very different in two to three years,” Zaslav told analysts during a morning call as rival streamers increasingly move to bundle their offerings together.
After releasing their first quarter earnings results, WBD execs talked about proposed streaming bundle partnerships with rival studios, including a sports steaming pact with Disney and Fox, to better serve cost-conscious consumers. The goal is the media conglomerate working with rival studios to squeeze profitability out of their direct-to-consumer platforms in the face of competition against market leaders Netflix and Amazon Prime Video.
On a proposed triple-play bundle of Disney+, Hulu and Max, Zaslav told analysts: “It will be priced well, and it will be both ad light and on ad free and for consumers in the U.S. it will be a really positive consumer experience and gives us a real advantage and opportunity when you look at the marketplace.”
Earlier, 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 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 at $2.46 billion, helped by subscriber price increases and higher advertising revenue, driven by Max U.S. ad-lite subscriber gains.
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.
On the analyst call, Zaslav argued Disney and WBD with their triple-play content package wanted to put themselves at the center of a streaming bundling push in by the entertainment industry to reach and retain consumers. “Two of the world’s most storied content companies are joining forces to deliver consumers the best and most diverse offering of entertainment at a very attractive price,” he told analysts about the Disney+/Hulu/Max initiative.
WBD and Disney plan to combine the Disney+, Hulu and Max streaming services, with specific pricing still to be determined, with the promise of both ad-free and ad-supported options of the bundle. Elsewhere, Zaslav touted a move by telecom giant Verizon to roll out a $10 per month deal that includes the ad tiers of both Netflix and Max. “The bundle with Netflix is doing much better than expected,” he reported.
JB Perrette, CEO and president of global streaming and games for WBD, argued on the morning call that bundling streaming services made both financial and creative sense after an earlier streaming arms race. “What happened in the 2010s is the industry went down a very dangerous financial path of trying to invest in every type of content, in every genre, to try and be something for everyone,” he argued of Hollywood’s Peak TV experiment having left consumers with too much content at too much cost, and having to cut back.
The Disney+/Hulu/Max bundle aims to battle increased competition in the streaming space, which has TV viewers cycling onto and out of streaming platforms to view their favorite content. “Churn is just the killer in this business, and so we have been hyper-focused on it… Certainly bundling is a big helper,” Zaslav argued.
Perrette added major studios and streamers had to focus on their strengths and stay in their lanes for competitive advantage, rather than splash out on originals in all genres as part of an all-out war between studios for supremacy in the streaming space.
“We’re now getting back to all being great at what we do and swim in the lanes that we were great at. Disney obviously is incomparable and a world leader in kids and family. We are world leaders in premium dramas, scripted drama, comedy and non-fiction verticals, and we can get back to investing in and prioritizing our lanes and our key content, and they can do that. And these bundles synthetically allow us to do that, while providing the consumer with a very attractive price for the combination of products,” he argued.
And on the sports front, Zaslav talked briefly about Warner Bros. Discovery looking to retain NBA media rights as they come up for renewal. “We’re in continuing conversations with them (NBA) now. And we’re hopeful that we’ll be able to reach an agreement that makes sense for both sides,” he told analysts. Zaslav added WBD has matching rights to answer third party offers as the NBA hold media rights negotiations with other players.
Should a new owner of Paramount Global auction off Paramount+, Zaslav said his studio would be ready to pick up new sports and entertainment content that came up for offer in the event of a studio breakup. “We’re always looking for great content… If we think it can provide a better consumer experience and strengthen our offering, we’re always looking at opportunities,” he told analysts.
During the first quarter, WBD’s quarterly earnings report 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: Kill the Justice League didn’t do well, hitting gaming revenue and earnings before interest, taxes, depreciation, and amortization (EBITDA).
Studios revenue fell 13 percent to $2.82 billion, with EBITDA dropping 70 percent to $184 million. Games revenue was down “significantly,” WBD said, while TV revenue “declined meaningfully as production delays resulting from the WGA and SAG-AFTRA strikes led to fewer episodes delivered during the first quarter of this year, as well as the timing of content availabilities and licensing deals.”
Theatrical revenue, however, “increased significantly due to Dune: Part Two and higher carryover from fourth-quarter 2023 titles,” the company noted. “Home entertainment revenue grew materially due to Wonka and Aquaman and the Lost Kingdom.”
The first-quarter Studios results came after a year of major transition for Hollywood studios affected their financials in 2023.
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. Revenue and EBITDA both decreased by 8 percent to $5.13 billion and $2.12 billion, respectively.
Addressing analysts, Zaslav predicted more collaborations between Max and the studio’s linear TV channels following the success of ID’s Quiet on Set: The Dark Side of Kids TV premiere, including on Max. “The true crime vertical has great traction on Max, and by leveraging the production scale at ID, we will be able to curate additional series very effectively and efficiently that work across Max and our other distribution platforms,” he argued.
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. Distribution revenue decreased by 6 percent, driven by the firm’s AT&T SportsNet exit and “declines in U.S. pay-TV subscribers, partially offset by increases in U.S. contractual affiliate rates and inflationary impacts in Argentina.”
WBD’s first-quarter total revenue fell 7 percent to $9.96 billion, while the company reduced its expenses by 9 percent to $10.23 billion. That led to a quarterly loss of $966 million, including $1.88 billion of “pre-tax acquisition-related amortization of intangibles, content fair value step-up, and restructuring expenses.”
Adjusted EBITDA, another profitability metric, dropped 20 percent to $2.10 billion, “primarily driven
by the success of Hogwarts Legacy in the prior-year quarter while Suicide Squad: Kill the Justice League generated significantly lower revenues in the current year quarter,” the conglomerate said.
WBD shares were down 3.9 percent at $7.50 in pre-market trading, close to the stock’s 52-week low of $7.34 hit on May 1.
