Warner Bros. Discovery nears 95M streaming subs, bumps up timeline for combined HBO Max-Discovery+ service

Warner Bros. Discovery added 2.8 million global streaming subscribers in the third quarter, but saw direct-to-consumer revenue decline year over year mainly due to the expiration of a wholesale deal with Amazon in 2021.

Looking ahead to 2023, the company is pushing up the launch timing for a combined HBO Max and Discovery+ streaming service from summer to spring, according to WBD President and CEO David Zaslav.

Across its direct-to-consumer streaming services, including HBO Max and Discovery+, WBD’s subscriber base totaled 94.9 million as of the end of September. The lions share of subscribers came from international markets in Q3, where WBD added about 2.3 million users for an international base of 41.4 million. In the U.S. and Canada, Warner Bros. Discovery gained around 500,000 direct-to-consumer subscribers for a total of 53.5 million.

Average revenue per user (ARPU) for international subscribers in Q3 was $3.68, while domestic ARPU was $10.66.

While the company debuted smash hits like “House of the Dragon” – it’s largest premiere in in HBO’s history and series launch on HBO Max, DTC revenues were down 6% year over year in the period to $2.3 billion. Warner Bros. said the revenue decline was primarily due to the end of a wholesale deal with Amazon Channels in September 2021. Content revenue also dropped to $145 million, down 25% from a year ago, driven by licensing HBO library content in Q3 2021. Advertising revenues were up in the direct-to-consumer segment, more than doubling to $106 million, led by subscriber growth on ad-supported streaming tiers.

Still, executives noted the company's advertising sales were impacted by a number of factors, including ad market trends amid a macroeconomic downturn. 

DTC operating expenses were up in the quarter, climbing 7% compared to the same quarter last year to $2.95 billion. The company said the cost of revenue jumped 22% on increased programming expenses. Warner Bros. Discovery reported a DTC adjusted EBITDA loss of $634 million.

On Thursday’s earnings call Zaslav said the company is investing in content at historic levels and highlighted a laundry list of moves and deals, including the recent hiring of James Gunn and Peter Safran as co-chairmen and CEOs of DC studios, among others. 

He reiterated that the company has plans for “aggressively attacking the AVOD market” with the launch of its own free ad-supported streaming TV service (FAST) in 2023, feeding into the company’s omni-channel distribution approach, the latter which is a pillar of its strategy to maximize monetization of content.

“The fact is we cover more surface area than any other media company, and that optionality allows us to distribute our content in multiple ways,” Zaslav said of the omni-channel strategy. “No matter where consumers go, or what their preferences are premium, pay TV, free-to-air, theatrical, streaming, gaming, we are there around the globe, and able to monetize our content and IP in ways that maximize audience and profitability,” adding that it continues to refine the windowing and distribution model.

Stay tuned for more on the FAST offering, he added, while also saying the company sees it as a real opportunity.

“As the company with the largest TV and film library in the industry we have a unique opportunity to increase our addressable market and drive real value and we plan to move quickly,” he noted, regarding FAST.

FAST also provides a way for Warner Bros. Discovery to monetize library content that it currently isn’t, without the need to spend on new programming.

“We have the ability on the FAST side to build a service without buying content,” Zaslav said. “Most of the players in that space are out buying content and then looking to sell that content.”

Since merging WarnerMedia and Discovery into the new Warner Bros. Discovery has been looking to save costs and disclosed increasing its synergy target to at least $3.5 billion, up from the previous $3 billion.

“We are fundamentally rethinking and reimagining how this organization is structured,” Zaslav commented.

Pushing up combined HBO Max/Discovery+ launch

As previously mentioned, the yet-to-be named combined HBO Max/Discovery+ streaming service platform is now expected to launch in the spring of 2023, with a premium ad-free and ad-lite option, Zaslav said on the call. The new service will first come to the U.S., followed by launches in Latin America, Europe and APAC.

In support of that launch Zaslav said the company has been experimenting and testing out features for the future product to address deficiencies in WBD’s existing platforms. For example, on the user experience front – HBO Max did not have an end card feature where it would surface recommendations for what to watch next after a show ends. WBD has started rolling this out and is “seeing very promising engagement uplift,” according to Zaslav. It’s also started migrating some Discovery+ content to HBO Max, including Magnolia Networks show “Fixer Upper: The Castle”, which he said became one of the top 5 shows after only its first few days on HBO Max.

“These early greenshoots bolster our strategic thesis that the  two content offerings work well together and when combined should drive greater engagement, lower churn and higher customer lifetime value,” Zaslav said.

The company’s focus is to deliver $1 billion in EBITDA on streaming by 2025, which it expects to make significant progress toward next year – with WBD’s chief executive emphasizing the company is looking at profitability as a metric of success rather than purely subscriber numbers.

In Q3 Warner Bros. Discovery’s total revenues were down 8% compared to the same quarter a year ago to $9.82 billion. The company recorded a net loss of $2.3 billion in the period. Total adjusted EBITDA decreased 9% to $2.42 billion. WBD previously disclosed expectations to incur between $3.2 billion to $4.3 billion in pre-tax restructuring costs related to the merger, including restructuring charges of $1.3 billion to $1.6 billion in Q3.