Warner Bros. Discovery posted a third-quarter profit gain to $289 million for its direct-to-consumer (DTC) unit, which includes its streaming and premium pay-TV services, compared with a $111 million year-ago profit.
The company, led by CEO David Zaslav, on Thursday also said that it ended September with 110.5 million global streaming subscribers, including for Max and Discovery+, compared with 103.3 million as of the end of June. The gain of 7.2 million users was the largest ever quarterly growth in subscribers since the launch of Max, with subscriber growth across all regions.
The gain was driven by the Paris Olympics which the company’s streaming operations featured in various international markets, streaming launches in new markets, as well as fresh content following last year’s dual Hollywood strikes. Streaming subs in the U.S. also posted a small gain. Total DTC segment revenue increased by 9 percent to $2.63 billion, led by the sub growth.
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 sustainably profitable.
In the DTC unit, quarterly distribution revenue increased 8 percent, excluding foreign-currency impacts, “primarily driven by a 15 percent increase in subscribers, as well as higher pricing, following the
launch of Max in Latin America and Europe during the first half of 2024, partially offset by continued domestic linear wholesale subscriber declines.” Advertising revenue jumped 51 percent, “primarily driven by an increase in domestic ad-lite subscribers.” Global DTC average revenue per user (ARPU) climbed 1 percent to $7.84, “primarily driven by domestic ad-tier subscriber growth, higher pricing, and a continuing subscriber mix shift from linear wholesale, partially offset by growth in lower ARPU international markets.”
Meanwhile, WBD’s third-quarter results at its studios segment, which has been moving through a more challenging period, included the box-office performance of Beetlejuice Beetlejuice, which was no match for Barbie. Studios unit revenue dropped 17 percent to $2.68 billion as theatrical revenue fell 40 percent, “primarily driven by lower box office revenue as the performance of Beetlejuice Beetlejuice and Twisters in the current year was more than offset by the stronger performance of Barbie in the prior year.”
Games revenue declined 31 percent, also driven by the better performance of the prior- year slate, led by Mortal Kombat 1. TV revenue increased 30 percent, “primarily driven by higher initial telecast revenue as a result of the impact from the WGA and SAG-AFTRA strikes in the prior year,” WBD said. Studios adjusted EBITDA declined by 58 percent to $308 million.
The conglomerate’s networks segment also continued to be affected by cord-cutting and advertising challenges in the latest period.
Networks unit revenue rose 3 percent to $5.01 billion. Distribution revenue fell 7 percent, driven by a 9 percent drop in domestic linear pay-TV subscribers, partially offset by a 5 percent gain in domestic affiliate rates. Advertising revenue decreased 13 percent, driven by domestic networks audience declines of 21 percent and “the soft linear advertising market in the U.S., partially offset by the broadcast of the Olympics in Europe in the current year.” Networks adjusted EBITDA dropped 11 percent to $2.12 billion, with the broadcast of the Olympics in Europe negatively impacting that figure by $65 million.
WBD previously unveiled a massive $9.1 billion goodwill impairment charge to write down the value of its traditional TV networks amid cord-cutting and advertising challenges. But Bank of America analyst Jessica Reif-Ehrlich in early October reiterated her “buy” rating and $12 price target on the stock. “We continue to believe WBD has a compelling assortment of assets,” she said. “Upcoming catalysts include 1) easing studio comparisons, 2) continued Max rollout internationally, and 3) potential recovery in advertising.”
She also highlighted a new WBD carriage agreement with Charter Communications unveiled during the latest quarter. “While there are several considerations, such as the inclusion of Max as part of the new affiliate deal, the most important takeaway was TNT affiliate rates appear to be flat versus the prior agreement and represents a much better outcome than expected” given the loss of NBA rights, the analyst concluded.
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