Less than a year after formally relaunching WarnerMedia as Warner Bros. Discovery following corporate parent AT&T’s asset spinoff, the upstart media company enters 2023 having generated more negative industry and Wall Street buzz than acclaim championing a newly imagined entertainment giant.
Less than 20 days ago, WBD disclosed it would incur pre-tax restructuring charges upwards of $5.3 billion — significantly higher than the previously announced $3.2 billion. The news sent the company stock plunging. Shares are still down more than 60% (Jan. 5) from a year ago pre-merger.
Content write-offs, which included the mothballed $90 million Batgirl movie, “The Time Traveler’s Wife,” “Finding Magic Mike,” “Minx,” “Westworld” and a possible “Wonder Woman” sequel, among other titles, have rankled Hollywood creatives.
To CFO Gunnar Wiedenfels, the bloodletting has been a necessary evil as the company restructures, combining the HBO, Turner and Warner Bros. business units into a singular operating company. While the cost cutting might be attributed to the merger’s goal of achieving $3.5 billion in cost synergies, Wiedenfels contends WBD is responding more to ongoing changes within the entertainment industry over the past two years than to the fiscal bottom line.
“Things are stronger today than they were last year,” Wiedenfels told investors Jan. 5 at Citi’s 2023 Communications, Media & Entertainment Conference in Scottsdale, Ariz. “We shaved off a lot of the excess [spending] last year. We took the courageous decisions that had be made. We’re done with that chapter.”
Characterizing 2022 as a year of internal refocusing and 2023 as a year of relaunching and building, Wiedenfels believes the long-term earning potential for WBD is better than originally envisioned. He said Warner would release twice (12) as many theatrical movies this year than in 2022.
“On the content side, we’re in great shape, [and] on the distribution side, we’ve always been very clear that we’re viewing WBD as one [content] portfolio — never going all in on direct-to-consumer or all-in on linear,” he said. “It’s about the combination of all of these platforms.”
On the immediate horizon is the combination of divergent streaming platforms HBO Max and Discovery+ into a single service relaunching in the spring. Wiedenfels said SVOD subscriber growth remained strong in the fourth quarter (ended Dec. 31, 2022) despite pullbacks in marketing. The company added Max to Amazon Channels, the e-commerce behemoth’s platform affording Prime members direct access to third-party SVOD services.
The executive said WBD is making the technological investments necessary to power the combined HBO Max/discovery+ streaming service.
“It’s an investment that we are making right now, and very soon we should have a state-of-art set-up there,” Wiedenfels said.
That said, the CFO reiterated that the current Max experience for subscribers is not where “it needs to be.” And rebuilding two services into a singular platform is a one-shot-only move that consumers will either embrace or reject, according to Wiedenfels.
“You only get one chance for a first impression with the consumer,” he said. “We’re going to come out with a great product from a consumer experience perspective.”
The executive said that the current Max service is not manageable as efficiently as a modern day technology product should work. He said the teams behind the combined service have made great improvements as is reflected in the improved Q4 churn and increased ads sold on “House of the Dragon.”
Wiedenfels said the combined streaming services would help expedite profitability to the direct-to-consumer business unit. At the same time, the executive said that the SVOD market overall is priced too low. He said collapsing seven distribution windows into a lower priced channel makes no sense.
“There was this capital market-fueled phase of land grabbing [among SVODs] where you couldn’t lose enough money and grow subscribers fast enough,” Wiedenfels said. “That’s behind us.”
He said that over the past 36 months, SVOD services across the board have gradually increased subscription pricing, moving away from a period of price wars and increased fiscal losses.
“We are bringing a [new] service to the market that I have no doubt is going to be the best streaming product in the marketplace,” Wiedenfels said. “And we’re not priced at that level right now.”
HBO Max is currently priced at $14.99 without ads, and $9.99 with commercials, while Discovery+ is priced at $4.99 with ads, and $6.99 without.
“I think there’s a lot of upside opportunity there,” Wiedenfels said.