Warner Bros. Discovery (WBD) continues to lose subscribers while growing ad revenue.
Max, the company’s new streaming service (which combines HBO Max and Discovery+ content), dropped 700,000 global subscribers last quarter, lowering its total count to 95.1 million.
The ongoing Hollywood actors’ strike was behind “one of the lightest original content schedules in years,” CEO David Zaslav told investors during the company’s earnings report on Wednesday.
Plus, the studio is also losing incremental revenue from subscribers who paid for both HBO Max and Discovery+ before the two became one.
But streaming advertising revenue, which is up 29% YOY, represents a glimmer of hope.
Hot on ads
WBD partly attributes its ad revenue increase to more viewership for live programming, which the former HBO Max didn’t have. Last quarter, WBD made a sports add-on tier for Max and launched a new app within the platform for live news, called CNN Max. (Hopefully, it goes better than CNN+.)
The studio decided to focus on sports and news because those categories attract new – and younger – viewers who won’t pay for linear TV. Live content should help WBD increase engagement and lower subscriber churn, which is currently “the biggest issue we face,” Zaslav said.
Since adding live sports and news to Max in the fall, WBD is already seeing engagement (as in time spent) grow significantly, he added. And thanks to streaming ad growth, average revenue per user (ARPU) is up 6% YOY to $7.82.
If WBD could grow ad revenue last quarter with “virtually no fresh content” on Max, then the company believes it’s positioned to capitalize on streaming even more when the actors’ strike resolves, said CFO Gunnar Wiedenfels.
For now, Wiedenfels said, Max is on track to becoming more profitable.
Casting the net
In other good news for WBD, it paid off another $2.4 billion in debt from Warner Media’s acquisition of Discovery last year.
The more debt WBD pays off, the more the company can “allocate to other growth opportunities,” Zaslav said, particularly “distributing our IP in ways that maximize reach.”
WBD has licensed HBO content to Netflix, Roku and Tubi this year, for example, and expanded its partnership with the European cable giant Sky over the summer to reach international markets. Next year, WBD intends to launch Max in Latin America in Q1, followed by select European markets throughout the course of the year.
Zaslav also teased the idea of pay TV bundles (as did Paramount in its earnings call last week).
There was “a lot of noise” around the recent carriage dispute between Disney and Charter Spectrum, Zaslav said, but the end result – Disney agreeing to add its streaming content to Spectrum’s most popular cable package – is an agreement “structured in a way that’s favorable for both parties,” he said.
That agreement will likely set a precedent for how other programmers approach carriage agreements.
For streamers, Zaslav said, the benefit of the traditional bundle is gaining more subscribers from pay TV. And what WBD needs right now is subscribers.
