WBD Earnings: Is Global DTC Growth Enough?

Friday, 8 November 2024, 8:30 am
Press Release: Parrot Analytics

Warner Bros. Discovery reports earnings Thursday amidst a beleaguered Pay TV industry dragging down its short and long term prospects.

The company’s current strategic positioning, debt load, and reliance on traditional cable revenue complicate its future growth potential, especially as other legacy players explore selling off cable assets.

With a pro-M&A FTC likely in 2025, all options are truly on the table for CEO David Zaslav & Co.

Cutting the Cord?

WBD’s viability as a standalone company remains uncertain, given its dependency on Pay TV revenue. This issue is endemic to the industry. Since summer 2023, WBD and Paramount wrote down $15 billion in cable network valuations, and the CEOs of Comcast and Disney publicly tested the waters of selling off once untouchable linear assets.

Comcast and Disney have more diversified revenue streams than WBD, so it may be easier for those companies to pull the trigger on such a seismic move.

WBD’s cable assets still provide significant revenue and value, and are the primary source of audience demand on streamer Max.

Streaming Metrics Analysis

Despite being the exclusive home to some of the world’s most in-demand series and franchises, WBD’s OTT performance remains mixed when it comes to streaming economics.

According to Parrot Analytics’ Streaming Metrics model, revenue growth for the company’s streamers has been inconsistent. After launching in April 2022, WBD’s streaming revenue growth rate increased in Q3 2022 before falling for four consecutive quarters. This coincided with a decline in both UCAN and global subscribers over the same time. While the streaming revenue growth has rebounded, UCAN subscriber growth has been frustratingly flat.

Further analysis reveals that revenue from HBO and Max subscribers makes up 88% revenue for the company’s DTC UCAN segment as of Q2 2024, with Discovery+ accounting for the remainder.

Global Expansion & Sports

WBD is just days away from launching Max in the Asia-Pacific region. This should boost global subscribers in Q4. But with flat growth in the UCAN — the most profitable region that generates the highest average revenue per user (APRU) — will this be enough?

The final season of TNT’s NBA coverage just tipped off, fronted by the legendary studio show Inside The NBA. With the impending loss of that flagship programming, TNT has added cheaper sports including college basketball and early round College Football Playoff games as well as All Elite Wrestling matches. This fits with CEO David Zaslav’s overall cost cutting strategy.

The real question is what happens when TNT comes up for carriage rate negotiations. WBD was surprisingly able to maintain TNT’s $3.00/subscriber fee to Charter, but will additional cable distributors not directly influenced by John Malone follow suit?

Revenue growth, cost cuts, and demand for HBO series offer some optimism for profitability, but fundamental questions remain about WBD's endgame. The need to diversify revenue sources beyond cable remains critical, as legacy models become increasingly unsustainable in a streaming-driven world. WBD’s path forward will depend on its ability to leverage its content library, expand globally, and navigate challenges tied to Pay TV and debt obligations.

DTC UCAN Revenue Breakdown

• Parrot Analytics’ Streaming Metrics model can breakout streaming economic performance by platform.
• Revenue from HBO and Max subscribers makes up 88% of the company’s DTC UCAN segment as of Q2 2024, with Discovery+ accounting for the remainder. This highlights just how valuable the HBO brand is to WBD as a whole.
• From WBD’s launch in Q2 2022 through Q2 2024, the company’s UCAN DTC quarterly revenue has increased 13%. The HBO/Max side is up 20.3%, while Discovery+ is down 20.3%. Over the same time the company’s total revenue has ticked down slightly, -1.16%.

UCAN Streaming Revenue Growth

• After WBD launched in April 2022, the growth rate of the combined revenues of then-HBO Max and Discovery+ increased once before then declining in four straight quarters. This coincided directly with plateauing UCAN and global subscriber growth.
• Since Q3 2023, the revenue from these platforms grew for the next three quarters. This correlated with positive UCAN and global subscriber growth through Q2 2024.
• A positive indicator that brighter days could be ahead for WBD as it works out its DTC streaming model across multiple platforms.

Demand Share by Release Type

• Among legacy backed streamers, Max is the least reliant on broadcast series demand. This makes sense considering WBD does not own a broadcast network, unlike its peers Disney, Comcast, and Paramount Global.
• That said, the demand share for broadcast series on Max (8.3%) far outweighs supply (2.0%), meaning Max is extracting good value out of the broadcast series it does license.
• This chart is a reminder of WBD’s crown jewel — HBO. Cable-originating series made up 75.9% of the demand for all shows available on Max in Q3 2024, up slightly from 75.3% in Q2 2024. This is by far the highest demand share of any streamer measured. The second most was Disney+ as 54.5%.
• Max’s demand share (75.9%) for cable series outweighs supply share (65.8%), suggesting WBD has room to leverage its cable assets for additional value.

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Parrot Analytics

Global television demand measurement

Parrot Analytics is the leading global content demand analytics company for the multi-platform TV business. With the world's largest TV audience demand datasets, the company currently tracks more than 1.5B daily expressions of demand in over 100 languages from 200+ countries to reveal the content consumers engage with and watch the most across platforms.

As a trusted partner to some of the biggest media companies and content creators in the world, Parrot Analytics optimises content workflows in real time. The company's TV analytics products result in better production, distribution, acquisition and marketing decisions, as well as accelerated SVOD platform success.

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