Warner Bros. Discovery grows with streaming, but faces challenges
Shares of Warner Bros. Discovery rose more than 3% before the start of Thursday's trading after announcing third-quarter results. The company saw strong growth in its streaming business, but its overall revenue fell short of analysts' expectations due to a decline in the studios segment and a long-term downturn in linear TV.
Warner Bros. Discovery $WBD reported third-quarter revenue of $9.62 billion, less than the $9.81 billion expected by Bloomberg analysts. Compared to the same period last year, that's down 3% from the original $9.98 billion. While the company reported a rise in earnings per share to $0.05, a marked improvement from a loss of $0.17 last year, it remains under pressure due to ongoing problems in its TV segment.
Earlier in the year, Warner Bros. Discovery took a large write-down of $9.1 billion in the first quarter, which was related to the loss of rights to broadcast NBA games. The loss of those rights not only caused financial losses, but also a legal dispute with the NBA, in which the company claims its contract extension offer was wrongfully rejected.
The TV networks segment continues to suffer from a decline in advertising revenues, which fell 13% year-on-year, a bigger drop than expected. In addition, the segment is facing pressure on the so-called affiliate fees that cable TV providers pay for access to content.
The loss of the NBA rights and the associated revenue declines have had a significant impact on financial results. Deutsche Bank estimates that this factor could reduce total revenue from these fees by approximately $560 million in 2026. However, the recent deal with Charter Communications, which included access to the Max streaming service, could partially mitigate these impacts.
The Studios segment saw a 17% decline in revenue from last year. This was driven by lower cinema revenues as films such as "Beetlejuice" and "Twisters" failed to achieve success comparable to last year's hit "Barbie".
Streaming as a bright side
On the other hand, the streaming service Max has brought positive results for the company. The number of new subscribers reached 7.2 million, which exceeded analysts' expectations, who predicted an increase of 6.1 million. These growth numbers come at a time when WBD is expanding Max's reach outside the United States into Latin America and Europe. The popularity of new programs, such as the second season of "House of the Dragon" and broadcasts of the Olympics, also contributed to the growth.
In addition to the growing number of subscribers, the company saw a 49% year-over-year increase in advertising revenue in the streaming segment. Recent increases in subscription prices also contributed to the segment's profitability.
Future prospects
Overall, Warner Bros. Discovery still has a tough time ahead. The company's shares have fallen more than 25% since the beginning of the year and it is expected that adjusted annual EBITDA could reach $9 billion, $5 billion below projections at the time of the merger.
Analysts at Bank of America have suggested that one possible move by the company could be to split its digital streaming and studio production business from traditional linear television. Comcast recently announced similar plans, considering separating its cable networks to better counter the instability of the media industry.
Warner Bros. Discovery is also focusing on further cost-cutting. Over the summer, the company laid off about 1,000 employees in various areas of its business and continues to cut expenses to increase free cash flow.
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Source: CNN, Yahoo Finance, CNBC.