Warner Bros. Discovery Surges to 110 Million Streaming Subscribers

Warner Bros. Discovery (WBD) has announced a significant milestone: over 110 million subscribers for its streaming service Max, boosted by the company’s aggressive international expansion strategy. In the third quarter of 2024, WBD added an impressive 7.2 million net subscribers, marking its strongest quarterly growth since the inception of Max. The rollout of Max began in Europe earlier this year and is set to extend to several Asia-Pacific markets starting November 19.

Revenue Challenges Amid Box Office Slump

Despite this subscriber growth, WBD's overall revenues dipped to $9.62 billion, a 3% decrease compared to the previous year. The company's adjusted EBITDA also took a hit, dropping 18% to $2.41 billion, while net income was reported at just $135 million. A substantial $1.6 billion charge related to acquisition costs and restructuring contributed significantly to this decline. Furthermore, the free cash flow plummeted 69% to $632 million.

Analysts' Expectations and Theatrical Landscape

Wall Street analysts had anticipated higher revenues, expecting approximately $9.81 billion. Compared to the same quarter last year, which had already been impacted by labor strikes, WBD's performance revealed challenges in the theatrical landscape, particularly due to the absence of blockbusters akin to the summer hit *Barbie*. Studio revenues dropped by 17% to $2.68 billion, with a staggering 40% reduction in theatrical revenues driven by underwhelming performances from films like *Beetlejuice Beetlejuice* and *Twisters*.

Network Segment Performance

On a brighter note, revenue from the networks segment saw a modest increase of 3% to $5.01 billion. However, this growth was tempered by a 7% decline in distribution revenue due to a downturn in domestic pay-TV subscriptions, alongside a steep 13% decrease in advertising revenue prompted by a sluggish ad market.

CEO's Optimism and Future Challenges

Despite these setbacks, WBD's CEO, David Zaslav, expressed optimism about the company's future, emphasizing the success of their international rollout and commitment to delivering high-quality content. He stated, "Our strategy is beginning to yield positive outcomes, as evidenced by the strong performance of our subscribers."

Opportunities Ahead

Looking ahead, WBD faces both opportunities and challenges. The anticipated release of *Joker: Folie à Deux* poses risks, as early indications suggest it may not perform well, marking a potential low point for 2024. Additionally, WBD will lose its NBA broadcast rights in 2025, a significant concern given the franchise's long-standing presence within Turner Broadcasting and its implications for revenue generation. Nevertheless, the company recently secured a vital distribution deal with Charter Communications, indicating robust confidence in its content portfolio and partnerships.

Joint Venture Challenges with Venu Sports

Moreover, WBD's involvement in the joint venture Venu Sports, backed by Disney and Fox, has met its own hurdles, experiencing a setback after a court injunction delayed the service's launch.

Navigating the Evolving Entertainment Landscape

As WBD navigates a rapidly evolving entertainment landscape marked by challenges in linear TV viewership and ongoing cord-cutting trends, shares have fluctuated between $7 and $8 since spring. A notable $9.1 billion write-down on cable network valuations last August reflects growing investor apprehension about the company's reliance on traditional media channels.

Conclusion

In summary, while Warner Bros. Discovery celebrates a surge in streaming subscribers, the company must address declining revenues and adapt to changing viewer habits to secure its future in the increasingly competitive media landscape. An earnings call set for today at 8 AM PT will provide further insights into their strategies moving forward.