Warner Bros. and Discovery insist their marriage is working. Although they’ve had to go through a little, shall we say, counseling.
“It was a heavy lift bringing [these] two teams together,” David Zaslav, CEO of Warner Bros. Discovery (previously CEO of Discovery), told investors during the merged company’s earnings conference on Thursday. “But the bulk of restructuring is behind us now.”
Still, the finances are messy.
WBD’s total Q4 revenue was down 9% YOY, and the merged broadcaster reported a 14% YOY decline in advertiser revenue from its linear TV networks. WBD expects free cash flow to continue dropping in Q1, for which it blames the economy, nagging acquisition debt and rising sports licensing costs.
But a boost in streaming is a light at the end of the tunnel.
WBD reported a 6% YOY increase in revenue related to streaming and a combined 1.1 million new subscribers for HBO Max and Discovery+. Global average revenue per user also rose to $7.58 from $7.52 in Q3.
And WBD expects that growth to accelerate once it releases its new-and-improved streaming service that will combine HBO Max and Discovery+ – although the company seems to have chosen its favorite child.
Behind the scenes
The merged streaming platform, which will be called “Max,” is still in the planning phase.
Despite quickening its pace on building “Max,” WBD didn’t confirm a release date or share new information from last quarter. It’s stalling until the spring to release more details during a press event on April 12.
But when asked by an investor from Goldman Sachs about WBD’s recent decision to keep Discovery+ as a standalone streaming service even after it releases the combined platform later this year, Zaslav said that offering Discovery+ both individually and as a bundle will help minimize subscriber churn.
WBD didn’t confirm how much Max will cost, although Zaslav did give a clue.
“Many Discovery+ viewers are already happy paying $5 [to] $7 per month for their home or cooking shows,” he said. “Why would we shut that off?”
HBO Max-imum capacity
But if you’re wondering what happened to the HBO in Max, the answer is on other companies’ streaming platforms. WBD is shoveling 220 canceled HBO titles onto Roku and Tubi in FAST channel format after relaunching HBO Max on Amazon Prime in December.
Zaslav said HBO Max has higher churn rates than Discovery+, yet it’s HBO Max that got its first price hike last month. And even though Zaslav said the combined offering will be a “much better platform” than either HBO Max or Discovery+, WBD is keeping Discovery+ on the market while wringing HBO Max for its best-performing shows and slashing many of the rest.
WBD is banking in particular on fan favorites “House of the Dragon,” “Euphoria,” “White Lotus” and “The Last of Us” to draw viewers into signing up for Max when the service comes out.
From all this activity, it seems clear which platform is getting the short end of the stick, but when an indebted company finds itself trying to merge two businesses during an economic slump, something has to give.
Profitability is more urgent for the company than subscriber growth alone, Zaslav said, adding that streaming is the “key segment” keeping WBD on the path to sustainable profit growth.
Investors appear satisfied enough – for now. WBD shares stayed pretty consistent during after-hours trading on Thursday.
