The action of Warner Bros. Discovery (WBD) fell another 14% mid-afternoon on Friday after the company announced third-quarter results that beat expectations across the board.
“It’s a legacy business of yesteryear trying to be a future business of tomorrow,” Julia Alexander, chief strategy officer at Parrot Analytics, told Yahoo Finance Live (video above).
Alexander added that the media giant “is a three-pronged business dealing with three different issues”, which she describes as a beleaguered theater industry struggling to reach pre-pandemic levels, a declining linear television business which – coupled with a slowing ad market – has lost revenue and subscribers, and an uncertain direct-to-consumer segment that has been hit by restructuring headwinds and criticism of profitability.
WBD CEO David Zaslav said on the earnings call that there will be more changes to come, revealing the company has increased its merger synergy target to $3.5 billion from $3. billions of dollars, with the goal of doubling the content and options.
“We rely on [content]”, Zaslav said on the call, explaining that WBD has been spending more than ever on content – addressing recent headlines of reduced production budgets, shutdown projects, as well as the removal of several titles from the platform. -forms HBO Max. He went on to say that “it took real courage” to restructure the company into a single unit.
“We’re going to see a lot more cuts on both the programming side and the labor side,” Alexander surmised. So far, more than 1,000 jobs have reportedly been lost.
It is a company inherited from yesteryear trying to be a future company of tomorrow…Julia Alexander, director of strategy for Parrot Analytics at Warner Bros. Discovery
According to data from Parrot Analytics, HBO Max has nearly 20% of movie demand across all major streamers amid an impressive library of content that includes recent hits like “The Batman” and “Elvis.”
However, demand for the platform itself fell significantly last quarter, from 11.5% in Q2 to 10.8% in Q3, suggesting users may be looking elsewhere for home entertainment. .
“If that demand continues to move away from HBO Max, even with hit shows like ‘House of the Dragon,’ that’s really stunting the growth of this platform,” Alexander warned, emphasizing the importance of growth. of DTC for the apprehensive. investors.
What will happen after the failure of the third quarter results?
Despite the record success of “House of the Dragon”, the company added only 2.8 million direct-to-consumer subscribers in the third quarter, compared to an expected 3.27 million. Management has guided a long-term goal of 130 million paying users by 2025.
The company’s planned combined service, originally slated to launch in the summer of 2023, will debut in the spring of 2023. Executives stressed that the media giant will “aggressively tackle” a streaming market funded by advertising which now includes Netflix (NFLX) and will soon include Disney (DIS).
“We anticipate a healthy inflection with the launch of our combined service and an expanded global footprint,” Zaslav told investors. “We have worked very hard. We can make the service available to consumers around the world and run the business at full capacity.”
Management has hinted that price increases are also expected to come to the platform in 2023.
“By 2023, HBO Max will not have increased its price since launch, which we believe is an opportunity,” noted JB Perrette, president of the company’s streaming division.
Profitability remains a top concern for investors as confidence in streaming fundamentals wanes. WBD reiterated its 2022 adjusted EBITDA forecast of between $9 billion and $9.5 billion, down from a previous forecast of $10 billion.
Revenue fell 11% to $9.82 billion, while the company also posted a net loss of $2.3 billion after a loss of $3.4 billion in the second quarter.
Alexandra is a senior entertainment and media reporter at Yahoo Finance. Follow her on Twitter @alliecanal8193 and email her at alexandra.canal@yahoofinance.com
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