Welcome to the latest installment of Dan Rayburn's Streaming Insights & Intelligence, a new weekly insights column on StreamTV Insider where the industry analyst puts facts and figures to the news you need to know about. Join the discussion on LinkedIn and check back each week as he unpacks key industry happenings.
Here’s what Rayburn is tracking for the week of February 12, 2024: Key takeaways from Warner Bros. Discovery earnings.
Last week, Warner Bros. Discovery reported Q4 and full-year 2023 earnings, showing a yearly profit in their D2C business of $103 million and year-over-year DTC revenue growth of 3% in Q4.
During their earnings call, the company discussed their expected DTC profitability for 2024, exclusive NBA negotiations, international expansion of Max, churn rates and the new JV streaming service with Disney and FOX.
Here are the key takeaways you need to know:
Finances
- WBD gained 500,000 DTC subs in Q4, ending the year with 97.7M
- Global D2C ARPU was $7.94, up 7% y/o/y
- Expects their D2C segment to be profitable for 2024, targeting $1 billion in D2C segment EBITDA in 2025
- Q4 saw the "lowest US churn rates in HBO Max and Max's history”
- In Q4, Advertising revenue decreased 14%; Studios revenue decreased 18%; Content revenue decreased 20%; Networks revenue decreased 8%; Distribution revenue decreased 3%
- Ended 2023 with $4.3B of cash on hand and $44.2B of gross debt. At the end of 2023, the average duration of the Company's outstanding debt was 15 years, with an average cost of 4.6%
- Over the next three years, WBD’s debt stands at $1.8 billion this year, $3.1 billion next year, and $2.3 billion in 2026
- Paid down more than $12 billion in debt in less than two years
Content and Max Expansion
- The domestic decline of Max subscribers in the second half of 2023 was due to the "partly strike-driven lack of fresh tent-pole content."
- “The strikes really slowed down production. And we didn't have as much content as we wanted for Max”
- “Engagement in terms of time spent proactive account has continued to increase, and most of that increase has been driven by the inclusion of the legacy Discovery content”
- “In terms of our NBA rights, we are now fully engaged in renewal discussions, and they are constructive and productive”
- Max will begin rolling out to international regions and markets, starting with Latin America next week, with markets in EMEA and APAC to follow later in the year, including new markets, France and Belgium, to coincide with the Paris Olympics this summer
- Max’s new ad-supported offering is currently only available in the U.S. but will be available in over 40 markets globally by the end of this year
- WBD says they will “continue to take a disciplined approach to investing in subscriber growth, mindful of lifetime value to subscriber acquisition cost ratios as we proceed into this next phase”
- For D2C, "We're not going back to subs at all costs, but we want to fuel profitable top line growth."
- About the new JV sports streaming service, WBD’s CEO said, “I've seen a number of the prototypes. We're pretty far along. This is not an announcement you're going to see. We're going to follow pretty quickly with our plans”
Key Takeaway
While many argue that WBD has a lot of debt, which they do, that’s not a current threat to growing their business.
The company paid down $12 billion in debt in the past two years and generated $6.2 billion in free cash flow for 2023, $1 billion due to lower content costs due to the strikes. Max is only available in less than half the addressable households and markets compared to their larger peers, so there is plenty of room for subscriber and revenue growth. With its plans to be in more than 40 countries by the end of this year, WBD has the potential to accelerate its DTC revenue, especially with the company saying it “has a substantial amount of local content” for its international expansion. In 2022, the company lost $2.1 billion in its DTC division. To swing to a profit of $103 million one year later is a huge accomplishment.
The company is now very focused on capital efficiency, as it should be, and says they have “significantly changed the approach to our investment decision-making and a harmonized process across the entire company.” Even with the international expansion, the company says it is not returning to a “subs at all costs” mentality and will focus on “profitable top-line growth.”
WBD has laid the groundwork to grow its DTC business internationally with local content, focusing on profitability, higher ARPU and a disciplined approach to spending on content. If they can execute their plan, they will generate more free cash flow to pay down more debt, putting the company in a better position to make Wall Street happy. They will be exciting to watch over the next 24 months.
Dan Rayburn is an analyst in the streaming media industry, with regular TV appearances on CNBC, Bloomberg TV, and Schwab Network amongst others. He is conference Chairman for the NAB Show Streaming Summit in Las Vegas each year, and his streamingmediablog.com website is one of the most widely read sites for broadcasters, content owners, OTT providers, Wall Street money managers, and industry executives. He also has a podcast at danrayburnpodcast.com. He can be reached at [email protected]
Dan Rayburn’s Streaming Analysis & Insights is an opinion column. It does not necessarily represent the opinions of StreamTV Insider.