Warner Bros Discovery's (WBD) two direct-to-consumer streaming services generated $50 million in profit on more than $2.4 billion in revenue, marking the first time the company's streaming products brought in more money than they lost.
On Friday, executives revealed HBO Max and Discovery+ saw an increase of 1.6 million global subscribers during WBD's first quarter of 2023, bringing the company's total direct-to-consumer subscriber count to 97.6 million.
Total distribution revenue for HBO Max and Discovery+ was reported at $2.16 billion, a 2% decline compared to Q1 2022. But WBD was boosted by its ad-supported versions of HBO Max and Discovery+, as DTC advertising earned $103 million during the quarter, a 27% year-over-year increase. "We’ve come through some major restructurings and have repositioned our businesses with greater precision and focus," David Zaslav, the president and CEO of WBD, said in a statement. "And we see a number of positive proof points emerging, with DTC perhaps the most prominent....we expect our U.S. DTC business to be profitable for 2023, a year ahead of guidance."
The affirmation comes as WBD is set to combine the content libraries of HBO Max and Discovery+ into a new streaming service called Max, which will replace the HBO Max service later this month. The price of Max is expected to be about in line with the current cost of an HBO Max subscription, though some features like access to ultra high-definition video will be relegated to a premium tier that costs $20 a month (currently, HBO Max subscribers can stream content in UHD, or 4K, for $16 a month).
The company's success in streaming was one of the few positive highlights of the quarter. Overall, WBD brought in $10.7 billion in revenue — about in line with estimates from Wall Street analysts — but lost $1.1 billion for the quarter. Loss per share was reported at 44 cents, a big miss from the 1 cent per share analysts were expecting.
On a conference call with investors Friday morning, Zaslav said the company continues to face the same macroeconomic pressures as other media companies, including a pullback in marketing spend across some traditional products like linear television. But Zaslav pointed to the company's diverse portfolio of products — which includes cable networks in the United States, as well as pay TV networks like Eurosport and localized versions of the Discovery and WarnerMedia channels overseas — along with cost cuts that will help turn the ship around in due time.
"We have a great diversity of assets," Zaslav proclaimed on the call. "We’ve restructured this company now and are really tight. The environment is challenged...but as things start to pick up, you’re going to see a very quick turn at this company."
Still, there was no denying that those other diverse products in WBD's business were hammered during Q1 2023. Distribution revenue from WBD's domestic cable channels fell 3% to $2.995 billion, spurred in part by the company's inability to negotiate higher rates for its channels with cable and satellite providers due to long-term contracts that have yet to expire, as well as a broader trend of cord-cutting where consumers ditch traditional pay television platforms for seemingly cheaper streaming options (like, for instance, HBO Max).
Advertising revenue at the traditional networks was also down, with WBD reporting $2.237 billion in segment revenue, down 15% compared to the previous year. Ads support programming and distribution costs on nearly all WBD cable channels, which include the flagship Discovery Channel, CNN, HGTV, TBS, TNT, TLC and Cartoon Network.
WBD said its linear television ad woes were largely attributed to a decline in viewers across its cable networks, as well as a softening in the ad market. Fears of a recession spurred by higher inflation and other macroeconomic elements have caused some companies to pull back on their ad spending, which has impacted most domestic media companies over the last few financial quarters.
Streaming is seen as one way to help offset those losses, and WBD continues to sign up viewers at a steady rate. In the domestic market, HBO Max and Discovery+ have a combined subscriber base of 55.3 million paying customers, up 3.5% compared to Q1 2022. Its average revenue per user, or ARPU, was $10.82 in the domestic market.
"We have turned the corner on our streaming business; we had a different view of it," Zaslav said on the conference call. "Our U.S. streaming business is no longer a bleeder. It is hard to run a business when you have a big bleeder."
Overseas, WBD grew its streaming audience to 42.3 million paying accounts, an annual increase of 13.7%. The figure includes customers in countries where an older version of HBO's streaming service is still offered, as well as markets where HBO Max has launched.