Warner Bros. Discovery, the media and entertainment giant, recently released its second-quarter results, which fell below Wall Street expectations. The company also revealed a decline in its subscriber numbers compared to the previous quarter. These disappointing numbers have raised concerns among investors and analysts about the company’s performance and future prospects.
At the end of the second quarter, Warner Bros. Discovery’s global direct-to-consumer streaming subscribers stood at 95.8 million, missing analysts’ expectations of 96.7 million subscribers. This decline of nearly 2 million subscribers from the previous quarter can be partly attributed to customers switching from Discovery+ to the newly launched Max streaming service. Data provider Antenna estimated that Discovery+ cancellations increased by about 68% in June 2022 due to the switchover to Max.
The decrease in subscribers has directly impacted the company’s revenue. Warner Bros. Discovery reported a net loss of $1.24 billion, or 51 cents per share, which was worse than analysts’ expectations. Revenue came in at $10.36 billion, slightly lower than the projected $10.44 billion. While the revenue was 5% higher year over year on an actual basis, it dipped by 4% when considering the impact of foreign currency and the merger.
Similar to its competitors, Warner Bros. Discovery has been striving to make its streaming business profitable. The company’s direct-to-consumer streaming segment turned a profit for the first time in Q1 2022 but experienced a loss of $3 million in the second quarter. This reversal was expected, as executives had cautioned about the costs associated with the Max launch.
Combining the two streaming services, Discovery+ and Max, has been a significant objective for Warner Bros. Discovery. So far, the pricing for subscribers has remained the same, with options for $9.99 a month with commercials and $15.99 a month without ads. However, the decline in subscribers indicates that the company needs to reevaluate its streaming strategy and offerings to attract and retain customers effectively.
Warner Bros. Discovery’s studios segment faced challenges during the second quarter, resulting in a decline in earnings. Total revenue for the segment fell by 8% to $2.58 billion compared to the previous year, where the company had a stronger film slate that included blockbuster hits like “The Batman.” When factoring in the impact of the merger, the segment was down 23%, showcasing the negative effects of the consolidation.
The underperformance of films at the box office contributed to the segment’s disappointing performance. “The Flash,” released during the second quarter, failed to attract a significant audience and had lackluster box office returns. However, executives expressed optimism about the impact of upcoming releases, such as “Barbie,” on the third-quarter results.
The networks segment of Warner Bros. Discovery’s business remained mostly flat in terms of revenue at $5.76 billion. However, advertising revenue for this segment saw a decline due to the falling number of traditional cable TV subscribers and a soft ad market. On a pro forma combined basis, the segment experienced a 6% decrease.
The weak ad market, coupled with the uncertain macroeconomic environment, has been a burden on Warner Bros. Discovery and its peers in the media industry. The rate of cord-cutting has accelerated, posing a challenge for traditional TV advertising. CEO David Zaslav expressed disappointment with the prolonged ad market slowdown and the lack of a meaningful recovery in the second half of the year.
Warner Bros. Discovery has been focused on reducing its heavy debt load resulting from the 2022 merger. During the second quarter, the company repaid $1.6 billion in debt and announced a tender offer aimed at paying down an additional $2.7 billion. The objective is to achieve investment-grade status by the end of the year.
At the end of the second quarter, Warner Bros. Discovery had $47.8 billion in debt and $3.1 billion in cash on hand. The company considers deleveraging a critical element in its turnaround strategy and aims to allocate its free cash flow to support its diverse businesses.
Warner Bros. Discovery’s second-quarter results highlighted the challenges it faces in the streaming business and the underperformance of its studios segment. The decline in subscribers and disappointing financials have raised concerns among investors. The company’s focus on debt repayment and its efforts to optimize its streaming services will play a crucial role in its future success. Additionally, navigating the changing landscape of the advertising market will be essential for Warner Bros. Discovery to regain its momentum and return to sustained growth.