Warner Bros. Discovery Now Expects Streaming to Be Profitable in 2023

That's one year ahead of schedule; read the company's mixed Q1 financial results here.
"The Last of Us"
"The Last of Us"

We’ve got good news and bad news for Warner Bros. Discovery shareholders. While the company lost another $1.1 billion in the first quarter of 2023 on a (non-adjusted) net basis, its U.S. streaming portfolio actually made money ($50 million) before interest, taxes, depreciation, and amortization. And David Zaslav, the president and CEO, now believes the direct-to-consumer business will turn a profit for this year — the previous expectation was that would not happen until next year.

Netflix and Hulu are the only streamers that are profitable; Disney believes Disney+ will turn a profit in 2024. Paramount+ and Peacock are anyone’s guesses at this point.

Wall Street projected WBD would earn a penny per share in Q1 on revenue of $10.78 billion. While Warner Bros. Discovery very slightly missed on revenue with $10.700 billion, it whiffed on earnings with a loss of 44 cents per share. Adjusted EBITDA, again, those earnings before interest, taxes, depreciation, and amortization, was $2.6 billion.

The company’s previous quarterly losses were: $2.1 billion (Q4 2022), $2.3 billion (Q3), $3.4 billion (Q2). WarnerMedia and Discovery, Inc. came together to form the new company in April 2022.

Warner Bros. Discovery had negative free cash flow (-$930 million) in Q1 one due to sports rights and other cyclic payments. The company ended the quarter with $2.6 billion of cash on hand and $49.5 billion in gross debt.

HBO Max and Discovery+ added 1.6 million combined subscribers in Q1, which will ultimately be the final full quarter for HBO Max; the new tally is 97.6 million. The two streamers will be combined into one service, Max, on May 23, though Discovery+ will continue to be made available as a standalone streaming platform. Last quarter, HBO Max and Discovery+ added 1.1 million combined subs.

Warner Bros. feature films in the first quarter of ’23 included “Magic Mike’s Last Dance,” “Creed III” (international markets only), “Shazam 2,” and “Evil Dead Rise.” The big one, “The Flash,” comes out in June; we were treated to a full screening last week at CinemaCon. Not to be outdone in the opening quarter, HBO Max saw the premieres for “The Last of Us” in January; the final season of “Succession” debuted on HBO in March.

“It is an important time for Warner Bros. Discovery. We’ve come through some major restructurings and have repositioned our businesses with greater precision and focus. And we see a number of positive proof points emerging, with DTC perhaps the most prominent,” David Zaslav, president and CEO, said in a statement on Friday. “We made a meaningful turn this quarter with $50 million in segment EBITDA and 1.6 million net adds, and we feel great about the trajectory we are on. In fact, we now expect our U.S. DTC business to be profitable for 2023 – a year ahead of our guidance. Even in today’s challenging marketplace, we are positioned to drive free cash flow and deleverage our balance sheet, and we remain confident in our strategy and ability to achieve our financial targets.”

Zaslav and his senior management team will hold a conference call at 8 a.m. ET to discuss the quarterly results in greater detail.

Max will launch at the current HBO Max prices: $15.99 per month (or $149.99/year) for ad-free and $9.99 per month (or $99.99/year) with ads. There’s also a new “Ultimate” ad-free plan for $19.99 per month (or $199.99/year) that allows four concurrent streams, 4K resolution, 100 offline downloads, and Dolby Atmos sound. Discovery+ costs $4.99 per month with ads of $6.99 without.

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