Warner Bros. Discovery Moves Streaming Operations into Profit as Subs Decline

NEW YORK—Warner Bros. Discovery reported that its global direct-to-consumer streaming subs fell in Q3, 2023 but streaming finances improved dramatically with a positive adjusted earnings before interest taxes depreciation and amortization (EBITDA) of $111 million, a $745 million improvement from a year ago when adjusted EBITDA was a negative $634 million. 

Total DTC subscribers were 95.1 million at the end of Q3, a decrease of 0.7 million global subscribers since the end of Q2 2023 but global DTC ARPU was $7.82, a 6% increase excluding the impact of foreign exchange rates (ex-FX) from the prior year quarter.  

DTC revenues were $2,438 million, up by increased 5% ex-FX compared to the prior year quarter.

Distribution revenue increased 5% ex-FX, primarily attributable to new partnership launches, price increases in the U.S. and certain international markets, the launch of the Ultimate tier in the U.S., and favorable mix shifts from wholesale to higher revenue channels.

Advertising revenue increased 29% ex-FX, primarily driven by Max U.S. ad-lite subscriber growth and higher engagement per subscriber.

Meanwhile the company’s decision to remove content from its offerings allowed DTC operating expenses to drop to $2,327 million, a 21% decline ex-FX compared to the prior year quarter.

Costs of revenues decreased 12% ex-FX, primarily driven by lower content expense.

David Zaslav, president and CEO said he was “very pleased with the strong financial results that our company delivered in Q3, underscored by 22% growth in Adjusted EBITDA and over $2 billion in free cash flow, putting us on track to meaningfully exceed $5 billion for the year and contributing to our nearly $12 billion in debt paydown to date. Among the highlights, our Direct-to-Consumer business had another profitable quarter with $111 million of Adjusted EBITDA and launched its new live-programming offerings with CNN Max and the Bleacher Report AddOn, which are showing early signs of contributing to increased engagement and lower churn on Max. We’ve made great strides in just 19 months and are excited to continue building on this strong momentum, as we focus on driving future growth and creating long-term value for our shareholders.”

But the company’s stock fell by more than 16% in early trading by 12:45 pm ET on worries that weak ad results could hurt 2024 results. 

Network ad revenue was down by 12% from a year earlier and company executives admitted during the earnings call that they would have a hard time reaching their debt reduction goals in 2024 if the ad market didn’t improve.