Warner Bros. Discovery saw subscriber losses for its direct-to-consumer streaming services in Q3 and its chief executive cited churn as the SVOD’s biggest issue, while noting some early signs of improvements.
WBD lost 700,000 global DTC subscribers in Q3, bringing its tally to 95.1 million. That includes a loss of 1.4 million subscribers domestically, which outpaced international subscriber gains of 700,000 in Q3. It follows losing 1.3 million subs in U.S. and Canada in Q2. WBD’s domestic DTC base is now 52.6 million while international stands at 42.5 million. WBD’s DTC segment includes the Max and Discovery+ SVOD services.
The ongoing Hollywood actors’ strike made an impact during the period as little new content flowed to the platforms. On Wednesday’s earnings call, WBD CFO Gunnar Wiedenfels attributed modest DTC sub losses to an “extraordinarily light content slate,” as well as some expected decline in overlap of Discovery+ and Max subscribers.
Despite a slimmed down subscriber count, the company touted DTC revenue gains and positive EBITDA, as executives emphasized a focus on profitability over subscribers. WBD CEO David Zaslav said “it’s not about how many subscribers, it’s about how much money” and believes it can grow the DTC business meaningfully, including through international expansion.
Direct-to-consumer revenues were up 5% year over year to $2.4 billion in Q3, while operating expenses decreased 21% year over year. New partnership launches and prices increases, alongside the debut of a Max Ultimate tier in the U.S. helped grow distribution revenues by 5%, while DTC advertising increased 29% to $138 million. Revenue from content decreased 17% due to lower third-party licensing. Domestic DTC APRU expanded to $11.29.
WBD is doing better and moving faster than it thought in terms of achieving profit goals for the DTC segment, according to Gunnar. After achieving positive streaming EBITDA in Q1, WBD continued to improve in Q3. It posted Adjusted EBITDA of $111 million, marking a $745 million year over year improvement from Q3 2022.
WBD is looking ahead to a stronger content slate in 2024 with series like “True Detective” and further bolstered in 2025 with new seasons of “White Lotus,” and “The Last of Us,” among others. It also recently brought on live news and sports to the Max SVOD with the launch of CNN Max and the Bleacher Report add-on.
Although only six weeks in, Zaslav said WBD’s already seen that “engagement is higher and churn is lower” for people watching news and sports, with meaningful engagement increases in some cases.
The CEO called improvements to churn a big deal, saying “churn is the biggest issue we face.”
Last month Antenna data found one-third of U.S. premium SVOD signups in Q1 were from “serial churners” - those who canceled three or more times in the previous two years - compared to just 10% in 2019.
“This is a very compelling service, the churn is too high,” Zaslav continued. “This is an all on attack to reduce churn.”
Decreasing churn also helps lower marketing costs because the company won’t need re-market to the same subscribers that come in and out of the platform.
WBD’s JB Perette, CEO and president of Global Streaming and Games, said it’s seeing “great progress”, particularly with the introduction of live programming in the U.S. “on both cancel rates and auto renew off coming down.”
And Zaslav believes bundling is key and where the industry is headed, including with sports.
“I think bundling in terms of the of the entertainment package is important. The ability for us to get together with others domestically, around the world. I think it’s a better package for consumers where we could likely reduce churn and get better economics,” he said.
Charter-Disney deal ‘innovative’
Zaslav called the recent Charter and Disney carriage agreement an “innovative deal” beneficial to both parties and “favorable for the ecosystem.”
Part of the deal involved bundling Disney’s ad-supported DTC apps in certain Spectrum TV packages, where Disney collects a per-subscriber fee for its streaming product, alongside access to the cable operator’s large customer base and marketing engine.
Zaslav said one could imagine a scenario as WBD is redoing carriage deals, or even in advance of that, to include Max and Discovery+ ad-lite tiers into agreements. This delivers added benefit to cable subscribers, while allowing WBD to get paid on each subscriber, sell advertising against each of those and, notably, have “lower churn on each of those.”
He also sees it as a bridge for the linear business.
In Q3 WBD’s linear networks business saw revenue decline 7% to $4.86 billion, as the ad market remained challenged. Networks advertising revenue dropped 13% driven by domestic audience declines for general entertainment and a soft U.S. ad market. WBD leadership said the ad market isn’t seeing improvement in Q4 that many had hoped for and indicated uncertainty as to when it might recover.
Still, WBD is not giving up on linear, according to Zaslav.
He categorized the Charter-Disney deal overall as a positive, and one that created a potentially creative path “to more [streaming] scale, lower churn and more stability in linear.” And in WBD’s case, its ad-lite SVOD products incorporated also creates an incremental advantage.
In terms of scale, Perrette said it’s been encouraging to see with live sports and news on Max that customer segments are complementary and not cannibalistic of its linear TV audiences, as digital viewers are a different and much younger demographic - the vast majority of whom don’t subscribe to pay TV.
This “leads us to believe that these two can coexist and should coexist if we want to be in a Max reach maximizing strategy, which we do,” he said. “We like the profile of it and we think we can continue to find constructive ways to work with our traditional affiliates to make it work.”
WBD’s total Q3 revenues were up 2% year over year to $9.97 billion while adjusted EBTIDA grew 22% to $2.96 billion. Free cash flow reached $2 billion.