Warner Bros. Discovery reported second quarter earnings Thursday turbocharged by its studio business, even as its streaming business continues on its growth trajectory and linear TV still struggling in a tough environment.
The company reported revenue of $9.8 billion, up modestly from the same quarter a year ago, with net income of $1.6 billion (compared to a loss a year ago), and adjusted EBITDA of $2 billion, up 9 percent.
The quarter was powered by the company’s studios business, and to a lesser extent streaming, with studios revenue of $3.8 billion, up 55 percent from a year ago thanks to the performance of films like Minecraft and Sinners, as well as performance from the TV studios thanks to the timing of some renewals. Adjusted EBITDA was $863 million.
In a shareholder letter, WBD executives said that looking ahead the company intends to release 12-14 new films a year, split between 1-2 WB tentpoles, 1-2 DC Studios films, 3-4 New Line releases (including horror), 1-2 animated films, and 1-2 modestly budgeted original films.
In streaming, the company added 3.4 million subscribers, with revenue up 8 percent to $2.8 billion, and adjusted EBITDA of $293 million. HBO Max launched in multiple international markets, helping to spur growth, and the HBO Max ad product also drove ad revenue in streaming.
Linear TV, however, remains challenged, with the global linear networks division reporting revenue of $4.8 billion, down 9 percent from a year ago, and adjusted EBITDA of $1.5 billion, down 24 percent. While rights fee increased helped offset cord-cutting somewhat, lower viewership was a big driver of the decline, partly due to the absence of the NCAA March Madness Final Four this year.
The company said that it had completed the last of its six major carriage renewals, locking in those deals for some time, and said that its upfront was nearly complete.
The company is in the process of preparing to split itself in two, with the studios business, HBO, and HBO Max set to become a company called Warner Bros., and the linear networks set to become a company called Discovery.
On a morning analyst call, Warner Bros. Discovery CEO David Zaslav talked about pulling back on library content licensing to rival streamers to focus on HBO Max and its consumer appeal. “In order to differentiate HBO Max, it’s important that there are a wealth of properties, quality properties, that reinforce that you only get this at HBO Max, and that’s working for us in terms of driving growth,” he argued.
Studio CFO Gunnar Wiedenfels echoed that content licensing stance by adding: “We have taken a short term financial hit for some real value that’s going to flow through.” He also addressed TNT Sports moving away from HBO Max after the studio split and the future of WBD’s sports strategy.
“We’ve got a very, very strong (sports) portfolio, all the key franchises. And it’s going to be even more important as we look at Discovery Global as a separate, standalone entity,” Wiedenfels said as he reiterated an expected reduction in sub-licensing of library properties to third party platforms.
On the movie front, Zaslav pointed to efforts to bring back franchises like Superman and Lord of the Rings with new storytelling. “It’s been three years of investment, and you’re going to see these products roll out, and you’ll see them roll out strategically and with a real focus on cost,” he argued.
Zaslav called out DC Comics co-head James Gunn writing a sequel to Superman. And he added the Hollywood studio will push further into gaming and theme parks to drive more value from its movie group, and doing so in partnership with others. That effort will be led by Bruce Campbell, chief revenue and strategy officer overseeing a single worldwide division, Warner Bros. Discovery Global Experiences.
Zaslav also talked up the Sphere in Las Vegas getting set to show an immersive version of The Wizard of Oz later this month. “We’re also looking at our own project around Wizard of Oz that we’ll talk about at some point,” he hinted.
Wiedenfels also discussed a challenged TV advertising market. “We obviously had some concerns going into the year, with the macroeconomic and geopolitical environment… The market has held up very well. We’ve seen prices up across all categories, more so in sports than in general entertainment. On the digital side, there is some price pressure, but we’ve maintained a very strong price premium for the quality of inventory that we’re delivering.”
And Zaslav reiterated his support for bundling streaming services to better draw consumers where viewers are tasked with dealing with too many TV apps to find what they want to watch. “A big piece of this will be cleaning up the consumer experience. I expect that we’ll look at this business four or five years from now and it won’t be 18 (apps) and I think the companies that are most successful will be global,” he argued.
“It’s just better together. Some of it will be the result of consolidation in some markets, and some of it will be white flags — I don’t want to lose money anymore and I want to get back to what a lot of companies want to get back to, what they do, which is just produce content and leave the global direct-to-consumer fight to others,” Zaslav added.
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