Warner Bros Discovery squeezed by studio slump, weak ad spending

The Warner Bros logo is seen during the Cannes Lions International Festival of Creativity in Cannes, France, June 22, 2022. REUTERS

Warner Bros Discovery posted a quarterly loss that was larger than expected as advertising sales slumped at its cable TV unit and the studio segment contended with the fallout of last year's Hollywood strikes and poor demand for a "Suicide Squad" game.

The results amplified the media companies' struggles with subdued advertising in the US and certain international markets as businesses responded to the possibility of higher-for-longer interest rates with a tight leash on costs.

Ad revenue at the company's networks segment fell 11% in the first quarter. On Tuesday, rival Disney also reported a drop in its traditional TV business.

The streaming unit remained a bright spot for Warner Bros Discovery, adding 2 million subscribers and reporting a 72% jump in adjusted core profit to $86 million.

Investors have pushed for a focus on profitability and away from boosting subscription, as Netflix consolidates its leading position in the streaming wars.

Warner Bros Discovery on Wednesday joined hands with Disney to offer a bundle of the Disney+, Hulu and Max streaming services in the US, starting this summer. The companies, along with Fox Corp, had unveiled a sports-streaming venture earlier this year.

"We are effectively seeing the return of the big bundle, delivered over the internet," said Paolo Pescatore, analyst at PP Foresight.

"HOPEFUL" ON NBA

CEO David Zaslav said the company "was hopeful" it would reach an agreement with the NBA to keep the league on Max and TNT, which has held those rights for almost four decades.

That helped shares trade flat after tumbling premarket as NBA rights are considered central to the company's efforts to drive growth in its streaming business and retain cable customers.

Warner Bros Discovery "will become a weak third leg" in the new sports-streaming venture if its NBA deal is not renewed, said Ross Benes, senior analyst at Emarketer.

The company's studio revenue was hit by the underperformance of the game "Suicide Squad: Kill the Justice League", compared with 2023's top-seller "Hogwarts Legacy".

Revenue at the business fell 12%, despite "Dune: Part Two", which is 2024's highest grossing movie to date with a worldwide box-office collection of over $700 million.

The company continues to face challenges posed by the twin Hollywood strikes last year, which led to production delays and fewer episodes during the first three months of the year.

Revenue of $9.96 billion missed estimates of $10.23 billion, according to LSEG data. Loss of 40 cents per share was larger than expectations for a 24-cent loss.