Warner Bros. Discovery is busy preparing for an epic Hollywood studio merger with Paramount Skydance, which itself faces three antitrust lawsuits opposing the acquisition based on allegedly harmful and anticompetitive outcomes.
Despite those legal machinations, “we remain confident that our agreed-upon sale to Paramount Skydance will be completed,” CEO and President David Zaslav told investors during the company’s earnings call on Thursday. But beyond that canned comment, WBD refused to discuss the merger further.
Instead, WBD wants to instill investor confidence in the company as it is. However, WBD reported a less-than-impressive Q2, earning about $8.7 billion in total revenue.
Investors expected higher earnings, and WBD execs cited softer ad sales growth and the continued decline of linear TV as its reasons for missing expectations. The loss of domestic NBA broadcast rights was one important factor in the company’s 22% decline in overall ad revenue last quarter. Unfortunately for WBD, it missed out on a banner sports season. There was the 2026 FIFA World Cup, of course, plus the NHL playoffs, MLB season, UEFA Champions League and the NBA Playoffs, all of which delivered gains for advertisers, with only a minority slice of the NHL and MLB broadcasts going to WBD.
Unsurprisingly, streaming ads are the biggest bright spot on WBD’s earnings report card. (The same goes for other broadcast media giants that are managing linear declines and streaming growth.)
In Q2, WBD’s overall streaming revenue jumped 9% year over year, surpassing $3 billion. The company credits higher subscriber growth and retention for the ad-supported tier on HBO Max, thanks in large part to new content and its share of live sports.
High hopes for advertising
To continue the momentum in its streaming business, WBD wants more viewers to subscribe to its ad-supported plans.
As of last quarter’s close, roughly 40% of HBO Max subscribers are on an ad-supported plan, which is up 11% YOY. As a result, streaming ad revenue rose 8% YOY.
The growing ratio of ad-supported subscribers holds promise for WBD, but the platform is “still in the very early stages of monetization growth,” according to the company’s shareholder letter. Meanwhile, other streaming platforms, including Peacock and Disney+, recently began boasting about having reached standalone profitability in their streaming business.
To catch up with the competition, WBD plans to focus on growing its live sports programming slate and its presence in international markets.
WBD claims a 73% spike in international ad revenue growth last quarter following the launch of HBO Max in new markets earlier this year, including Germany, Ireland and the UK. Although the company is still working on improving its “still lower international fill rates,” per the shareholder letter.
One way to boost ad revenue is by increasing the number of ads and types of ad formats. Which also partly explains WBD’s strong interest in pause ads, for example. Another predictable tactic for WBD is to bolster its live content slate. The company is encouraged by the success it’s seeing with MLB and NHL events, in addition to March Madness.
WBD also wants to improve its bundled offerings, which are apparently back in vogue as streaming players rediscover some linear cable tactics.
WBD is a big believer in bundles, “particularly at a time where pricing continues to increase across individual services,” JB Perrette, CEO and president of global streaming and games, told investors.
Overall, the bright spots in WBD’s score sheet represent a “powerful and impressive business turnaround” from 2022, Zaslav said.
At this time in 2022, WBD missed investor expectations by $2 billion, and was busily attempting to combine HBO Max and Discovery+. (Anyone remember CNN+?)
But, for investors, 2022 is ancient history at this point. (Or so WBD hopes.)
Zaslav noted that the great expansion of HBO Max, which is expanding its global footprint and ad-supported tier, is “a critical element of us as a growth engine and countering the cyclical decline that we’re seeing.”
