Warner Bros. Discovery, the parent company of both Warner Bros. and Discovery, posted a massive quarterly net loss of $2.92 billion, symptomatic of the financial strain that traditional media giants are experiencing trying to catch up with streaming giants such as Netflix and Disney.
Much of the decline stemmed from a $2.8 billion payment that is tied to the resolution of merger related obligations before the proposed merger with Paramount Global and Skydance Media. If it goes through, the agreement could change the power dynamics in the world of entertainment.
But on the upside, Warner Bros Discovery had some momentum going on streaming. The division’s revenue increased 9 percent to $2.89 billion for the quarter, and HBO Max expanded its international footprint aggressively to surpass 140 million subscribers worldwide.
The results reflect a significant trend in Hollywood. Media companies are making investments to develop huge streaming platforms that could rival tech platforms in the long term as they sacrifice short-term profits.
Under the leadership of Chief Executive David Zaslav, the company has repeatedly made streaming its long-term, core business, shifting the emphasis away from cable television networks that are struggling to hold on to subscribers. Streaming has been the company’s focus and the way to grow away from struggling cable television networks and into premium digital content and global subscriptions, under the stewardship of Chief Executive David Zaslav.
The company, however, is also increasingly being squeezed in the ad business. Television revenue fell 7 percent for the quarter, reflecting the lack of NBA broadcasting rights, and a reminder of the importance of live sports to both television networks and the advertisers.
Analysts think the proposed Paramount-Skydance deal could address that issue by establishing one of the best sports and entertainment holdings in the U.S. apart from Disney. The merger would give the combined entity a global audience of over 220 million streaming subscribers, adding HBO Max and Paramount+ users to a single streaming platform.
The merger follows a wider trend of media studios combining assets to withstand rising production budgets, keep subscribers and build up resistance to streaming giants with global strategies.
Without major sports content, Warner Bros Discovery said that its advertising business is likely to be “weak” for the upcoming quarter and that it will be another 16 percent revenue headwind.
So far, the company’s business plan is simple: scale first, profit second.
In the digital entertainment era, bigger may be the only way to survive, and the message from the legacy media companies is starting to get through in Hollywood’s streaming war.
