The exterior of the Warner Bros. campus was filmed. Discovery Atlanta after the Writers Guild of America begins its strike against the Alliance of Motion Picture and Television Producers, in Atlanta, Georgia, on May 2, 2023.
ELISA indicator | Reuters
Warner Bros. DiscoveryIt missed analyst targets for both earnings and revenue in the fourth quarter as advertising declined and the company failed to provide free cash flow guidance for 2024.
Warner Bros. shares closed. Discovery is down 10% on Friday after the report.
The company's net loss in the fourth quarter was $400 million, or 16 cents per share, compared to a loss of $2.1 billion, or 86 cents per share, during the same period last year. Warner Bros. announced Discovery reported a 14% decrease in linear television advertising revenue excluding foreign currency exchange changes and a 4% decrease in actual distribution revenue.
“This business is not without its challenges,” CEO David Zaslav said during the company's fourth-quarter earnings conference call. “Among them, we continue to face the effects of ongoing disruption in the pay-TV ecosystem and the rarefied linear advertising ecosystem. We challenge our leaders to find innovative solutions.”
Here's what the company reported for the quarter ending December 31, versus analyst estimates, according to LSEG, formerly known as Refinitiv:
Loss per share: 16 cents vs. 7 cents expected Revenue: $10.28 billion vs. $10.35 billion expected
Adjusted EBITDA in the fourth quarter was $2.5 billion, down 5% from a year ago, excluding the impact of foreign currency exchange, as studio revenues were delayed as a result of strikes by the Writers Guild of America and the Screen Actors Guild-USA. Radio artists.
Studio revenue fell 17% to $3.17 billion in the quarter. Adjusted EBITDA for the unit fell 29% to $543 million.
“The studio's performance was really poor, including at the end of the year, where we had some real difficulties,” Zaslav said during an earnings conference call.
Free cash flow
Warner Bros. has made Discovery generated $3.31 billion in free cash flow in the fourth quarter and ended 2023 with free cash flow of $6.16 billion, up 86% from the prior year. Zaslav has prioritized enhancing free cash flow and reducing the company's debt.
However, the company said there will be headwinds to free cash flow in 2024 as content spending increases on the back of last year's writers and actors strikes.
CFO Gunnar Wiedenfels declined to provide free cash flow guidance for 2024 while noting that the Olympics, a commitment to increase revenue caps while increasing spending and uncertainty over annual EBITDA could all impact cash generation this year.
“I expect 2024 to be another strong year for free cash flow,” Wiedenfels said. “I deliberately don't want to give specific quantitative guidance for free cash flow.”
Warner Bros. Discovery is due to pay off $1.2 billion of debt this quarter and $5.4 billion of debt in 2023. It still has $44.2 billion of total debt remaining after paying off $12 billion of debt in the past two years.
Maximum profitability for 2023
The company's flagship subscription streaming service, Max, ended 2023 profitable, with full-year adjusted EBITDA of $103 million.
Zaslav has dramatically cut content spending on the streaming service since merging WarnerMedia and Discovery in 2022. His efforts have helped Max reach profitability ahead of streaming divisions at rival legacy media. Disney, ComcastNBCUniversal and Paramount Global.
The company reported 97.7 million global direct-to-consumer subscribers, an increase of 2% from the previous quarter.
The company said Max will be profitable in 2024, although it will lose money in the first half of the year as the studio increases spending on content before recovering in the second half. Warner Bros. expected Discovery expects Max to achieve EBITDA of $1 billion for 2025.
The Max ad level, currently only available in the U.S., will be rolled out in 40 global markets by the end of 2024, Zaslav said during the call.
Combined sports
Zaslav did not provide any pricing details for the company's upcoming sports joint venture, which was announced earlier this month with Disney and Fox, but he confirmed that the product will be intended for the 60 million American households that do not currently subscribe to cable.
One benefit of the service, scheduled to launch in the fall of 2024, is that consumers won't have to worry about finding the right channel for playoff games for Major League Baseball, the National Hockey League or the National Basketball Association, Zaslav noted. Because the streaming app will automatically send consumers to any game on Fox, ESPN, TNT or TBS.
President and CEO of Warner Bros. Discovery's David Zaslav attends the world premiere of the 4K restored 1959 film “Rio Bravo” presented on opening night of the 2023 TCM Classic Film Festival at TCL Chinese Theater in Hollywood, California, April 13, 2023.
Audi Girucci | AFP | Getty Images
“We don't see a lot of people canceling their cable subscription to get this,” Zaslav said. “The younger generation that doesn't subscribe, we're able to catch up with those we miss.”
Wiedenfels said Warner Bros. Discovery continues to negotiate with the NBA to renew media rights, but will not overpay according to the company's internal estimates of the league's value.
“It's very easy to lose control of sports rights investments,” Wiedenfels said. “This is not how we do it. We know exactly what value we assign, and we remain disciplined throughout our discussions.
Disclosure: NBCUniversal is the parent company of CNBC.
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