Warner Bros. Discovery reaches 97.7 million Direct-to-Consumer subscribers

Warner Bros. Discovery reported fourth-quarter and full-year 2023 resultsAlthough Max has been losing subscribers, average revenue per user increased 7% vs. the prior year quarter.

23 FEB 2024

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Warner Bros. Discovery reported financial results for the quarter and year ended December 31, 2023. Q4 total revenues were $10,284 million, showing a 7% decrease ex-FX compared to the prior year quarter. However, the net loss improved to $400 million from $2.101 billion in the previous year's quarter.

Q4 total adjusted EBITDA was $2,471 million, decreasing 5% ex-FX compared to the prior year quarter. Cash provided by operating activities increased to $3,578 million, and free cash flow increased to $3,310 million. The company also reported it repaid $1.2 billion of debt during Q4 and ended the quarter with $4.3 billion of cash on hand, $44.2 billion of gross debt, and 3.9x net leverage.

David Zaslav, President and Chief Executive Officer of Warner Bros. Discovery, said: “After executing against our strategic plan to reposition the company, we are now on solid footing with a clear pathway to growth. We generated $6.2 billion in free cash flow and paid down $5.4 billion in debt in 2023, which puts us at 3.9x net leverage. We have an attack plan for 2024 that includes the roll-out of Max in key international markets, a more robust creative pipeline across our film and TV studios, and further progress against our long-range financial goals. We are confident in our ability to drive sustained operating momentum and enhanced shareholder value.”

Warner reported global Direct-to-Consumer (DTC) subscribers were 97.7 million at the end of Q4, which included 1.3 million subscribers from the acquisition of BluTV. According to Parrot Analytics, Max had been losing subscribers in both Q2 and Q3 of 2023. However, it is still in the top tier of streamers by total on-platform demand (all movies and TV series available). Still, it is a distant third place to Netflix and Disney in global subscribers, with no immediate path to break out of that position. Even though it lost subscribers during that time, Warner reported global DTC average revenue per user (ARPU) was $7.94, a 7% ex-FX increase vs. the prior-year quarter.

Parrot Analytics explained that the Max platform is more reliant on demand for cable-originating content than any other major platform, which is the kind of content that was the most heavily impacted by the recent work stoppage. In fact, 76% of the demand for content on Max is from cable-originating series. “House of the Dragon” will debut its second season this summer, but new seasons of zeitgeist-defining hit “The Last of Us,” “Euphoria,” and “The White Lotus” won’t arrive until 2025. Demand for the latest “True Detective: Night Country” season grew by 80% with global audiences compared to season three (which aired in 2019) and 167% with US audiences. Max enriches its offerings by including content from several subsidiary networks, such as Cartoon Network, Adult Swim, TLC, and Discovery Channel, collectively accounting for 25% of the platform’s television demand.

The company also shared that TNT Sports continued to strengthen its global sports portfolio with a four-year extension of its UK Premier League rights and signed a seven-year agreement with NASCAR in the US beginning in 2025. Moreover, In Q4, Adult Swim had the most significant year-over-year primetime delivery growth in cable among P18-49 and P25-54, led by Rick and Morty as cable’s #1 comedy.

While demand for original content drives subscription growth, Parrot Analytics found library content is critical for customer retention, an increasingly crucial element of all streaming strategies as consumers have more choices and easier ways to cancel than ever. Max in Q4 2023 stood higher than HBO Max did one year ago (14.2% in Q4 2022), but that wasn’t enough to vault it ahead of Netflix, and it’s less than half a percentage point ahead of third place Hulu. Once Hulu (15.2%) and Disney+ (9.5%) are combined, the fully operational Disney streamer should easily top both Netflix and Max regarding total on-platform content demand.

In December, Warner and Paramount’s principals had met and discussed merging. Wall Street did not respond kindly, and both stocks are down double digits since that report came out. However, as Paramount’s value continues to shrink, this may be its best option that doesn’t include selling the company for parts. If Paramount were acquired and its sports rights added onto the Max offering, this would significantly boost the value of a standalone sports streamer, bringing CBS Sports (i.e., more NFL games) into the fold.

A hypothetical combination of these companies makes sense from a scale perspective. It would leapfrog Disney as the number one media company in corporate demand share, and a combination of Max and Peacock would jump ahead of Netflix as the top platform in total catalog demand share.