Warner Bros Discovery’s surprise loss clouds strong streaming unit show

Warner Bros Discovery Inc posted a quarterly loss on Friday on costs tied to its 2022 merger, taking the shine off the first profit for its streaming business and sending the company’s shares down 5%.

The media company forged by the union of WarnerMedia and Discovery Inc recorded a $1.81 billion charge in the first three months of 2023 due to the merger, while also booking $95 million in restructuring expenses.

Warner Bros Discovery reported a per-share loss of 44 cents, while analysts had expected a profit of 1 cent, according to Refinitiv data.

The company’s streaming unit, which includes the HBO Max and Discovery+ services, posted adjusted pre-tax earnings of $50 million in the quarter, compared with a loss of $227 million a year earlier. It gained 1.6 million subscribers.

That marked a milestone for a division that had been losing money in its bid to gain subscribers and a foothold in the industry’s digital future.

CEO David Zaslav was in the vanguard of media executives who sought to restrain spending on content for the company’s service, seeking to balance the growth of the nascent service with continued investment in Warner Bros Discovery’s traditional film and television business.

“We are not trying to win the direct-to-consumer spending war,” Zaslav said a year ago.

Other entertainment conglomerates, notably Walt Disney Co, have followed suit, as they look to strike the right balance between improving profitability and spending on fresh content to attract and retain subscribers in an uncertain economy.

Warner Bros Discovery’s new streaming service, christened “Max,” is set to launch on May 23, combining HBO Max’s scripted entertainment with Discovery’s reality shows. It will seek to expand its reach beyond fans of HBO’s acclaimed and edgy shows by incorporating unscripted fare and children’s programming.

Warner Bros Discovery reported revenue of $10.70 billion for the first three months of 2023, compared with analysts’ estimates of $10.78 billion, according to Refinitiv data.

The Warner Bros studio segment missed on its revenue forecasts, as its big March release “Shazam! Fury of the Gods,” a sequel to 2019’s “Shazam,” was met with a cool reception at the box office. The sequel brought in $133 million at the box office, far below the $368 million garnered by the original.

“It’s been over a year since Warner Bros Discovery completed its merger and it looks like David Zaslav is still figuring out the best way to move this combined company forward,” said Jamie Lumley, an analyst at Third Bridge.

“With revenue dropping on an annual basis across all business segments and a swing to an overall net loss, it’s clear there is still a lot of work to do to get the company on firm footing.”

Advertising revenue at the company’s networks business, which includes HGTV, Discovery Channel and TLC, rose 56%. Reuters