Warner Bros Discovery reports underwhelming revenue, says new streaming service coming earlier

Warner Bros. Discovery reported its third-quarter earnings on Thursday, missing analyst expectations, as it felt the effects of a tough advertising environment and costs associated with its post-merger restructuring.

CEO David Zaslav also announced that the merged version of the company’s HBO Max and Discovery+ streaming services will be coming in the spring, earlier than the previously announced summer release date.

Here’s what the company reported compared with analysts’ expectations, according to Refinitiv:

• Revenue: $9.82 billion vs. $10.36 billion expected

The company reported a loss per share of 95 cents, citing macroeconomic headwinds, particularly in advertising.

Shares fell more than 5% after hours Thursday, after declining 5.6% to $11.97 during the regular trading session.

Warner Bros. Discovery is the result of a merger between AT&T’s WarnerMedia and Discovery, which was completed earlier this year. Since the merger was completed, the company has been in the midst of significant cost-cutting measures, such as laying off staffers and pulling content from its streaming service HBO Max.

“While we have lots more work to do, and there are some difficult decisions still to be made, we have total conviction in the opportunity ahead,” Zaslav said in the company release Thursday.

Later, on an earnings conference call, he added: “In fact, we see this a a meaningful opportunity, one we seized wholeheartedly to look inside each of our businesses and see what’s working, what’s not working, is it structured properly, and does it have the right resources.”

In the last year, Warner Bros. Discovery’s valuation has nearly been cut in half as Wall Street has lowered its expectations on global streaming subscriber growth. Streaming services have been competing for subscribers, with industry behemoth Netflix losing customers earlier this year and unveiling an ad-supported tier at a cheaper cost.

“I believe that the grand experiment of chasing subscribers at any cost is over,” Zaslav said on the earnings call Thursday, adding the company’s focus will be generating $1 billion in earnings before interest, taxes, depreciation and amortization from its streaming business by 2025.

Management also noted that HBO Max hasn’t increased its subscription price since its launch nearly three years ago, putting it in a good position to do so when it re-launches as a combined platform with Discovery+.

The company is also moving forward with its plans to launch a free, ad-supported streaming service, “aggressively attacking” the market and “moving quickly,” Zaslav said Thursday. Ad-supported streaming services such as Fox‘s Tubi and Paramount Global‘s Pluto TV have seen their audiences surge and add significant advertising revenue.

The company said it added 2.8 million direct-to-consumer streaming customers in the third quarter, bringing its total to 94.9 million global subscribers. Revenue for the direct-to-consumer segment dropped 6% to $2.3 billion, as its saw decreases in licensing and distribution revenue.

Warner Bros. Discovery’s film studio segment saw revenue decrease 5% to nearly $3.09 billion compared to the same period last year, when Warner had more theatrical releases.

In late October, the company said in public filings that it estimated it would book $1.3 billion to $1.6 billion in pre-tax restructuring charges during the third quarter. The restructuring is expected to be substantially completed by the end of 2024, and will incur approximately $3.2 billion to $4.3 billion in total pre-tax restructuring charges.

Meanwhile, the slowdown in advertising has been hitting media companies.

Revenue for its TV networks segment declined 8% to $5.2 billion. The segment was particularly impacted by a 11% drop in advertising revenue.

Warner Bros. Discovery CFO Gunnar Wiedenfels said advertising headwinds continue to affect the company into the fourth quarter, adding that they remained the greatest variable on the company’s performance in 2023.

Industry peer Paramount Global reported earnings on Wednesday, also missing analyst estimates as its TV and advertising revenue fell.