Warner Bros. Discovery (WBD) has its work cut out for it. The studio launched a brand-new streaming service this quarter.
Sure enough, WBD completed its second quarter with $10.36 billion in revenue, down 4% from Q2 last year when accounting for its merger, according to its earnings report on Thursday. WBD also lost 1.8 million streaming subscribers in the past quarter, now with a total of 95.8 million global subscribers.
It’s not all doom and gloom, though. The company paid off $1.6 billion in debt related to the merger. And streaming ad revenue rose 25% year over year, which WBD attributed to annual subscriber growth (up from 92.1 million at this time last year), despite the recent subscriber losses.
WBD execs said to expect high churn rates after it rolled out Max, its new streaming service, but not to fret as long as ad revenue growth is consistent.
“We’re building a sustainable, direct-to-consumer business focused on profitable growth, as opposed to chasing subs at any cost,” CEO David Zaslav told investors.
And, to that point, WBD’s average revenue per user (ARPU) rose to $7.71, ticking up 2% from $7.66 in 2022.
Advertising and ARPU are the twin growth engines for WBD’s streaming business, Zaslav said.
To the Max
WBD launched Max, its new consolidated streaming service (RIP, HBO Max), in May. It combines HBO Max and Discovery+ content.
The company hopes HBO Max subscribers will download Max for the same price ($9.99 per month with ads) and that subscribers to Discovery+, which still exists, will voluntarily pay more to switch to Max for the expansive entertainment library. Some “subscriber disruption” happened while migrating users to Max, Zaslav said, meaning that not all subscribers decided to stick around.
Despite the awkward choreography of WBD’s streaming assets coming together, Max is a business driver for the entire ad business.
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“[Max] was a huge driver of our success in this year’s upfront,” said Jean-Briac Perrette, president and CEO of Discovery’s streaming business. And ad revenue growth for streaming should continue to rise throughout the year, he added, because streaming apps generate more inventory with growth of the service.
All about advertisers
Earlier this year, the broadcaster started adding pre-roll ads to popular HBO titles that originally were ad-free, such as “House of the Dragon” and “Succession.”
WBD also licensed some of its IP to Netflix, Roku, Tubi and Amazon’s Freevee this year because, well, broader reach means more ad revenue.
“Licensing library content to optimize return on investment is just smart business,” Zaslav said.
Other than the additional ad supply, WBD pins some of its streaming advertising growth on higher user engagement. Before axing HBO Max, WBD claimed the app hadn’t solved for discovery of new shows and movies beyond what people saw on the home screen.
“The most important metric at this point [in Max’s life span] is the amount of time people are spending watching our content,” Zaslav said. “We’re already seeing early and encouraging signs of stronger engagement.”
